H^ij^ t 




Class 
Book 



Copyright ]^^. 



COPYRIGHT DEPOSIT. 



A HAND-BOOK 



OF 



CORPORATION LAW 



As Applied to 

Pfivaie Business Corporations 



BY 



RICHARD SELDEN SaRVEY 

Of The New York Bar 



NEW YORK 

THE BLEYER LAW PUBLISHING COMPANY 

1906 






LIBRARY of CONGRFSS 
Two CoDies Received 

JUL 19 1906 

jpyrigiii Entry 

)LASS <;C >'.Xc. No. 

COPY B, 



COPYRIGHT. 

1906 

By the BLEYER LAW PUBLISHING COMPANY 



PRINTED BY 

WYNKOOP HALLENBECK CRAWFORD CO., 

NEW YORK. 



TO 

ARTHUR P. HEINZE, 

CLASSMATE AND FRIEND, 

THIS WORK IS RESPECTFULLY DEDICATED 

BY THE AUTHOR. 



There is a potency in numbers when'combined, which 
the law cannot overlook, when injury is the consequence. 

Chief Justice Agnew, 

late of the Pennsylvania Supreme Court. 



For Table of Cases, see page 48 j 

Table of Text Books, " 52 j 

Index, " 52^/ 



PREFACE. 



The subject of the following pages is one which, it 
is believed, must appeal to the modern lawyer. 

The tide of transition from individual and partner- 
ship effort to incorporated forms has its source in good 
and sufficient reasons. 

This process of evolution being a beneficial one, will 
continue its course, at least in the realm of larger con- 
cerns ; and it requires of the progressive and ambitious 
practitioner an effort to not only keep abreast, but to 
be in advance of the movement. 

At the present day lawyers have not the time, even 
though they have the disposition, to deal with abstract 
questions of law. They need to know what has 
stood the test of challenge and dispute; namely, 
the utterances of Lords Hardwicke and Eldon, and 
their American counterparts, Marshall, Kent, Selden, 
Black, Davis, Waite and others of recognized standing. 

Herbert Spencer, in his autobiography, says : 'T 
could have filled a bookcase with masterpieces which 
I have not read." There are in every law-library of 
lair magnitude thousands of practically unused deci- 
sions which are the ripened products of experienced 
legal minds. They are gems of legal thought, not 
only pleasing to read, but capable of enlightening both 
bench and bar if time were available for their perusal. 
In the prevailing method of legal examination, the 

[i] 



11 



PREFACE 



examiner usually goes to the digests, or to the ency- 
clopedias of law, and from them to the reports; but 
it is to be regretted that in many instances he stops 
at the digests, and filling his brief with ''cases," leaves 
it to the judge to go to the reports,— often to dis- 
cover irrelevancy or unprofitable reiteration and re- 
dundancy. 

Those painstaking lawyers who go to the reports 
themselves in most instances review but a portion of 
the cases cited; in fact, the vast number of th'e ref- 
erences serves to repel and embarrass the briefing 
examiner, and often by the irony of fate the best 
authorities are passed by. Few go beyond the re- 
ports of their own and neighboring States, so that 
the greater part of that which is recorded is in effect 
lost and unknown. This is the more unfortunate 
because some of the smallest and even youngest of the 
States have possessed, and still produce, jurists who, 
judged by their work, are entitled to take rank with 
those who have conferred honor on the older and 
larger States. 

This work will not have been written in vain if some 
cases have been rescued from undeserved neglect, and 
if attention has been called to quarters where similar 
treasures will reward future research. 

It is perhaps only just to reader and author to say 
that there has been in the inception of this book a 
motive outside of and beyond the realm of pecuniary 
reward. 

Coupled with the growth of corporations in number 



PREFACE iii 

and importance has appeared a system for the despoil- 
ing of the small investor, — a system so adroit and 
audacious, and oftentimes so successful, as to consti- 
tute one of the plagues of the business-world. 

To combat and to destroy this up-to-date piracy will 
be the aim of every honorable practitioner. it is 
hoped and believed that ammunition for that warfare 
will be found in the following pages, to the end that 
the modern corporation may go forth fully equipped 
either for its ordinary course of employment, or for 
defense; as in the China seas the merchant-vessel car- 
ries ordnance sufficient, on occasion, to defend itself 
against the attacks of predatory rovers. 

It is too often assumed that the fight is hopeless, and 
a faint-hearted resistance is offered to those schemes 
for self-aggrandizement, — cherished and promoted by 
covetous associates in the common venture. 

This, however, is not good Anglo-Saxon doctrine, 
nor is such a sentiment to be found anywhere in the 
opinions of the jurists of Great Britain or America. 
Courage of the kind which prevailed upon the fields 
of Poitiers, Crecy and Waterloo is not extinct, and 
never will be; and when like pluck and resistance are 
carried into the fight against greedy combinations of 
corporate managers, the "thin red line" of opposing 
shareholders will gain the day. 

While the practical question, viz., whether the prop- 
erty-interests at stake and the evidence at command 
warrant appealing to the courts, must be decided in 
accordance with the facts of each individual case, the 



IV 



PREFACE 



readiness of those tribunals to protect the weak from 
spoliation by the strong, is abundantly illustrated in 
the text. 

In preparing this work, the author has gone with 
confidence to the great source of equity jurisprudence, 
and his search among the decisions of the Lords High 
Chancellors and their associates has not disappointed 
him in the quantity and the quality of the material 
there found ready to hand. "Without fear or favor," 
— the enunciations of law therein set forth are lofty, 
strong and distinctly judicial in their tone, and will 
remain an inspiration for generations yet unborn. 

It is to be regretted that in too many modern tri- 
bunals nice distinctions, saving clauses and particular 
cases have been permitted to befog the vision and to 
obscure, in whole or in part, the eternal rules which 
are, and must abide, the bright and God-given source 
of equity jurisprudence. 

It behooves the student, accordingly, to get back to 
first principles and to study those ancient decisions 
which, like the Ten Tables of old, remain a repository 
of high ideals and sound law. 

In the presence of these standard decisions and dec- 
larations by master-minds, the element of variance 
from true alignment can be at once detected, and the 
measure of confidence to be reposed in modern cases in 
American, English and Colonial courts can be cor- 
rectly estimated and assigned. 

The cases cited are in line, it is believed, with the 
catholic spirit with which the author has approached 



PREFACE V 

the work at bar. Wherever the rules of equity pre- 
vail his search for useful precedents has extended. 
The ability of a given decision or text-book has been 
deemed sufficient ground for citing it, or for quoting 
from its pages, without regard to the size or impor- 
tance of the State in which it was rendered or pro- 
duced; merit alone has been the touch-stone. 

In fact, there are throughout this book numerous 
instances supporting the statement hereinbefore made, 
viz : that there is a large amount of excellent mate- 
rial 'locked up" in the least-cited reports. 

Should these labors encourage a closer study of 
those cases worthy to be denominated "leading" and 
here for the first time joined in communal relations, 
it will be a source of great satisfaction to the author, 
independently of other rewards for the effort involved 
in this "search after wisdom." 

The principle enunciated in the text regarding the 
right of the shareholder to an inspection of the books 
and records has been affirmed in recent decisions by 
the United States Supreme Court. 

This confirmation of views, deliberately adopted 
after careful study of conflicting authorities, it is 
gratifying to record. 

Among the text-books which have been invaluable 
are the following: 

Spelling on Private Corporations. 
Angel and Ames on Corporations. 
Potter on Law of Corporations. 



vi PREFACE 

Beach on Private Corporations. 

Kyd on Corporations. 

Clark and Marshall on Corporations. 

Cook — I, on Corporations; 

2, on Stock and Stockholders. 

Morawetz on Private Corporations. 

Thompson on Corporations. 

Waterman on Corporations. 

Brice's Ultra Vires. 

The author dcFires to express his appreciation of 
the uniform courtesy of Mr. Alfred J. Hook, Libra- 
rian, and especially of the aid of Mr. Daniel E. Cub- 
berly. Assistant Librarian of the Law Library in 
Brooklyn, who has corrected the citations and authori- 
ties, and prepared the table of cases, and to whose 
trained assistance he has been greatly obligated in the 
progress of his labors. 

Richard Selden Harvey. 

New York, 
April, 1906. 



TABLE OF CONTENTS. 



CHAPTER I. 

THE PRIVATE BUSINESS CORPORATION — DFFINITION 
AND RELATION TO COMPONENT MEMBERS. 

A much-discussed topic. — The basic distinction con- 
sidered. — Limitations of this treatise. — Defini- 
tions from various authoi itative sources. — A 
leading decision. — Other leading cases. — The 
civil law. — The corporation is a distinct entity. 
— Authorities generally. — Origin of business- 
corporation idea. — Substantial harmony of defi- 
nitions. — Substance of definitions.. . . . page 7 

CHAPTER H. 

SITUS . 

The corporate home. — Recapitulation. — Further au- 
thorities. — Situs as it affects foreign corpora- 
tions page 39 

[vii] 



viii , CONTENTS 

CHAPTER III. 

FOREIGN CORPORATIONS AND COMITY. 

A discussion of the principles involved. — Authori- 
ties considered page 50 

CHAPTER IV. 

RIGHTS AND POWERS. 

Relation to preceding chapters. — Sources of corporate 
powers. — Charter as a source of powers. — 
Enumeration of principal powers. — Extent of 
powers. — Powers by implication. — Limitations 
of powers P^^^ ^^ 

CHAPTER V. 

THE POWER TO ALIENATE THE CORPORATE PROPERTY 
AND RIGHTS. 

Extent of power. — Right to exercise power. — Lim- 
itations of power. — Allied subjects. — Consen- 
sus of opinion pO'^^ 85 

CHAPTER VI. 

BONDS AND MORTGAGES. 

Use and convenience of such securities. — Underlying 
idea. — Limitation of rule, when applied to quasi- 
public corporations. — General principle asserted 



CONTENTS ix 

in a leading case. — Other controlling authori- 
ties page 92 

CHAPTER VIL 

THE DUTIES, OBLIGATIONS AND LIABILITIES OF 
CORPORATIONS. 

Differing types of corporations imply different duties, 
etc. — Beginning and scope of these incidents 
to corporate existence. — Enumeration. — Prin- 
ciples applied p(^g^ 102 

CHAPTER Vni. 

THE CHARTER. 

AA'liat the charter really is. — Some reference to orig- 
inal mode of creating corporations. — Evolution 
of modern mode of incorporation. — The charter 
a contract. — This basic principle important. — 
Authorities confirmatory of the foregoing doc- 
trines p<^g^ 113 

CHAPTER IX. 

THE CHARTER — ( Continued) . 
Extent and effect of contractual relation. — Legisla- 
tive power to amend is limited by Constitu- 
tion page 140 



X CONTENTS 

CHAPTER X. 

BY-LAWS. 

Not necessary, but useful. — By-laws defined. — 
Power to create, and general purpose. — Must be 
reasonable. — By-laws must conform to charter, 
Constitution and statutes. — Right to make by- 
laws an inherent power. — Reference to decisions 
discussing subject broadly. — Rule as to judicial 
interference stated. — Effect of by-laws. — Addi- 
tional authorities as to validity and judicial inter- 
ference. — Distinction between by-laws and regu- 
lations. — By-laws bind corporate members. — 
Principle of estoppel applies. — Rights of third 
parties not prejudiced page 156 



CHAPTER XI. 

STOCK AND STOCK-CERTIFICATES. 

Varied uses of term. — Legal signification. — Distinc- 
tion between certificate of incorporation and stock 
certificate. — Nature of stock certificate consid- 
ered. — Principle governing right to transfer. — 
Stock certificate is only quasi-negotiable. — Lim- 
ited negotiability affects lost or stolen certificates. 
— General remarks page 183 



CONTENTS xi 

CHAPTER XII. 

ON CHANGE OF CAPITAL STOCK. 

Importance of subject. — No inherent power to make 
change. — Authority from legislative act must 
appear. — Reasons for rule stated page 203 

CHAPTER Xni. 

stockholders' meetings. 
Stockholders' Meeting is corporate legislature. — Dis- 
tinctive features of this chapter. — Plan includes 
epitome of treatment by distinguished authors. — 
Nature and requirements of meetings. — Clark 
and Marshall. — Angel and Ames. ■ — Potter. — 
Cook. — Morawetz. — Thompson. — Spelling. 
— Bouvier. — Waterman. — Blackstone. — 
Kent. — Price page 209 

CHAPTER XIV. 

stockholders' meetings — (Continued). 
Will of majority controls. — Binding effect dependent 
upon proper notice. — Individual assent not 
equivalent to meeting. — Real owner, as opposed 
to record owner, entitled to vote. — Stock- vote 
as binding as sealed instrument. — Supervision 
by court of equity. — Illegal votes not neces- 



^xii CONTENTS 

sarily fatal to whole meeting. — Perpetual voting 
trust invalid. — Inequitable or fraudulent acts 
restrained. — ■ Limits of corporate power. 

page 244 

CHAPTER XV. 

DIRECTORS, OFFICERS AND AGENTS. 

Importance of delegated authority. — Infrequency of 
litigation of subject. — Corporation has inherent 
right to appoint. — When appointed, are quasi- 
trustees. — Authority governing directors and 
officers. — Close resemblance of corporate to 
other agents. — Ultra vires principle applied. — 
Usual responsibility coupled with such agency. — 
Directors not insurers of fidelity of others. 

page 272 

CHAPTER XVL 

STOCKHOLDERS INTER-SESE. 

A semi-fiduciary relationship sometimes exists. — 
Courts of Equity require fair-dealing. — Discrim- 
ination is ultra vires. — Mutual responsibility 
flows from implied contract. — One cestui-que- 
trust must not injure another. — Result of dis- 
tinction between disfranchisement and removal. 
— Equity is surest recourse. — Guilty stock- 
holders equally liable with directors. — Differ- 



CONTENTS xiii 

ence between joint-stock companies and corpora- 
tions. — Legislative intent opposed to oppres- 
sion page 280 

CHAPTER XVIL 

THE FIDUCIARY RELATION. 

A much-debated question. — The principle at last 
established. — Director occupies a fiduciary posi- 
tion. — Elements of doctrine stated. — Lord 
Hardwicke quoted. — A leading modern case to 
same effect. — Rule in Federal Courts. — Other 
leading cases. — Courts protect weaker from 
stronger. — Canadian authority. — Recent Eng- 
lish case. — Rule as modified in application. 

page 297 

CHAPTER XVHL 

INSPECTION OF BOOKS AND PAPERS. 

Discussion of principles on which right is based.. - — 
Inspection an incidental and common-law right. 
— Includes right to make copies. — Receivership 
not ground for refusal. — Promotion of ulterior 
purpose through inspection not favored. — Man- 
damus proper remedy for refusal of right. — 
Recent decisions confirmatory of the text. 

page 312 



xiv CONTENTS 

CHAPTER XIX. 

stockholders' rights and wrongs enumerated. 

Difficulty of task imposed. — Rights as enumerated by 
text-writers. — General classification of wrongs. 
— Instances of wrongs. — Source of the ma- 
jority of wrongs. — Distinction noted. — Enu- 
meration of wrongs. — Wrong usually involves 
infraction of trust relation. — A leading case 
quoted. — Reference to further treatment else- 
where pci'gs ^^^ 

CHAPTER XX. 

RATIFICATION, ACQUIESCENCE, LACHES, ESTOPPEL. 

Distinguishment of these corelative terms. — When 
courts will refuse relief. — Estoppel defined. — 
Principle of estoppel, as applied to corporative 
acts. — Periods of deferred action amounting to 
acquiescence, etc. — Presumption of ratification 
arises when benefits are received. — Presumptions 
same as with natural persons. — Knowledge must 
precede ratification, etc. — Equity follows the 
law. — Rule as to illegal acts. — New York rule 
as to subsequent purchaser. — Stockholder may 
confide in management, without laches. 

page 337 



CONTENTS XV 

CHAPTER XXI. 

THE REMEDIES FOR STOCKHOLDERS' WRONGS; WHAT 
THEY ARE, AND WHEN APPLIED. 

Consideration of remedies is necessary as well as per- 
tinent. — This subject belongs to equity. — Lord 
■ Hardwicke's decision in a leading case. — Re- 
marks suggested by same. — Oppression by di- 
rectors most common source of complaint. — 
Difference between general and local text-books 
considered. — Remedies classified. — Distinction 
between stockholders suing individually and as 
a class. — Broadness of relief, in equity. — Gen- 
eral consideration of remedy for oppression re- 
sumed. — Notice to corporation as a condition 
precedent to suit. — Stock newly bought and for 
ulterior object carries right to sue. — Equity 
protects small holder. — Reaches abuse of joint 
control. — Principles and authorities generally. 

page 350 



CHAPTER XXn. 

AMALGAMATION COMBINATION CONSOLIDATION 

MERGER; AND HEREIN ALSO OF CONSPIRACY. 

Definitions of these terms. — Question of conspiracy 
is involved. — Absorption of going concern re- 



xvi ■ CONTENTS 

quires unanimous consent. — Railroad cases are 
most numerous decisions in point. — Combina- 
tions known as trusts not treated of herein. 
— Leading authorities considered and cited. — - 
Essentials of amalgamation stated. — Further 
authorities in support of text page 395 



CHAPTER XXIII. 

HOLDING COMPANIES. 

Object sought to be accomplished by these companies. 

— Old and new methods contrasted. — How 
Holding Company is formed. — Such method not 
equivalent to individual holding. — Main asset 
consists of voting power of companies controlled. 

— Exclusive control invades property rights. — 
Principle involved within rule of Dartmouth Col- 
lege Case. — Authorities on right to permanently 
absorb voting power. — Rule as to fiduciary 
relation repeated. — It is ultra vires to surrender 
corporate functions. — Such surrender is also 
against public policy. — It amounts only to revo- 
cable proxy. — Trusts not treated of herein. — 
Stockholders entitled to benefit of individual 
judgment. — Reasonable latitude allowed. — 
Some reflections on the general theme of this 
chapter pd'g^ 421 



CONTENTS xvii 

CHAPTER XXIV. 

CORPORATIONS AS AFFECTED BY CONSTITUTIONAL 
PROVISIONS. 

Certain constitutional provisions particularly concern 
corporations. — Same enumerated. — Impair- 
ment of obligation of contracts. — Contractual 
relation is settled law. — Reservation of right to 
amend. — Exercise of reserved power must con- 
, form to Federal Constitution. — Every such 
amendment is necessarily fundamental. — Vested 
rights as affected by amendment of charter. — 
Subject of Holding Companies is likewise con- 
cerned herein. — Modern situation akin to ancient 
problem of mortmain. — Deprivation of property 
without due process of law. — Termination of cor- 
porate independence should require dissolution 
and division of assets. — Constitutional amend- 
ment as construed by courts. — Constitutional pro- 
visions and foregoing divisions are contravened 
by scheme of Holding Company. — Administrative 
reform which the situation demands . . . page 453 

CHAPTER XXV. 

TERMINATION OF CORPORATE EXISTENCE. 

Corporative existence ceases by limitation or by ju- 
dicial dissolution. — Grounds for termination. — 



xviii CONTENTS 

Death of all its members no longer valid ground. 

— Authorities on subject generally. — Local rules 
and procedure prevail. — Remarks on subject of 
chapter page 470 

CHAPTER XXVI. 

IN CONCLUSION. 

Underlying principle of Anglo-Saxon jurisprudence. 

— Oppression by directors, etc., violates that 
principle. — Application not remote. — Right to 
participate is concerned therein. — A solid and 
firm right. — This right permeates the corpora- 
tion, extending to every share. — It pertains to 
and follows the stock. — Reason for this right. — 
Majority-control no answer to claim of right to 
participate. — Limitations of powers of directors 
as representatives of majority-interest. — Allu- 
sion to constitutional prohibition against the tak- 
ing of private property, etc. — This constitutional 
provision applied to oppressive acts of directors. 

— Occasion for these remarks. — National well- 
being requires that the foregoing principle shall 
be firmly enforced. — Means of redress exists. 

page 476 



HAND-BOOK 

OF 

CORPORATION LAW 



CHAPTER I. 



The Private Business Corporation — Definition 
and Relation to Component Members. 



A much-discussed topic. — The basic distinction consid- 
ered. — Limitations of this treatise. — Definitions 
from various authoritative sources. — A leading 
decision. — Other leading cases. — The civil law. — 
The corporation is a distinct entity. — Authorities 
generally. — Origin of business-corporation idea. — 
Substantial harmony of definitions. — Substance 
of definitions. 

A much-discussed topic. — The definition of the 
private business corporation has been the subject of 
almost boundless discussion, not only by the text- 
writers, but by the courts. 

In a general way, it may be said that a corporation 
is an association of persons who, with their successors, 
have been by the Sovereign or the People acting through 
its representative the legislature, formed into an arti- 
ficial body constituting a legal entity, for the purpose 



8 Corporation Law as Applied 

of carrying on some designated business or enterprise, 
with the power of acting as a unit and possessing the 
right to be treated to a certain extent as a natural 
person. 

The basic distinction considered. — Perhaps the 
reader cannot be put in touch with the subject more 
readily than by the following article from the ''Ameri- 
can Law Review." The learned writer says : 

"In the recent work of Messrs. Lowell on Transfers 
of Stock, the legal idea of a corporation is thus ex- 
pressed: — 'The corporation is something distinct from 
its members, its life is independent of theirs. Its will 
may at times be different from that of its members; 
and it may be bound by conduct which binds no one 
of its members as an individual; of course there is in 
reality no rights or duties but those of natural persons : 
but the rights and duties of natural persons who deal 
with a corporation arise from a mere fiction and their 
nature and extent are determined by that fiction. A 
person therefore who confounds a corporation with its 
stockholders, who say they are the corporation, or that 
it consists of its members, not only mistakes the legal 
view of the matter, but is in danger of falling into end- 
less confusion and error. A corporation is distinct 
from its members in the same sense that a State is 
distinct from its citizens. The parallel indeed between 
a corporation and a State is very close.' " 

Professor Pomeroy, in his review of Taylor on Cor- 
porations, is then quoted as follows : 



to Private Business Corporations 9 

'The author has here touched upon, although he has 
not fully developed, a fact which in our opinion must 
ere long be recognized and acted upon by the courts 
in dealing with the law of corporations. 

'The common-law conception of the 'legal personal- 
ity' — of the metaphysical entity constituting the cor- 
poration, entirely distinct from its individual members, 
arose at a time when corporations were all created 
by special charters generally granted by the Crown. 
When very few of them were 'stock' corporations : 
when they were mostly perpetual in existence; when 
absolutely no personal liability was imposed upon the 
individual corporators, but the legal status of the cor- 
porators was wholly swallowed up in the 'legal person' 
of the corporation, and when corporations were in 
reality, as a necessary result from this creation and 
legal position, monopolies. 

"In the United States at the present day almost 
all corporations, whether business or otherwise, are 
formed under general laws. * * * 

"The English courts have never treated the 'Joint 
Stock Companies' with limited liability, formed under 
these special statutes, as being identical with com- 
mon-law corporations, but have always carefully dis- 
tinguished between them. In our opinion, the American 
courts must, in time, recognize and enforce the same 
distinction." 

The editor of the review then continues : 
"It ought, perhaps, to be added, that both views of 
the question are measurably correct. A corporation, 



10 Corporation Law as Applied 

in most of its relations, acts as a unit, and it is, for 
the most part, convenient to view it as an unit and 
to regard it as a 'person in law' ; but in many relations 
the proper idea of a corporation is not that of a per- 
son, but that of an aggregation of persons, or a kind 
of limited partnership. The effort of practical juris- 
prudence should be to regard it as an unit, or as a 
collection of persons, according to the relation in which 
it acts in a given instance. The shield will be either 
red or white, accordingly as it is viewed from the one 
side or the other." — Am. Law Reviezv, Vol. XI X., p. 
1 14, et seq. 

Limitations of this treatise. — It is not the pur- 
pose nor within the scope of this work to enunciate the 
correct rule, as we conceive it to be, excepting in 
disputed points; it is rather to afford to the reader, 
whether professional or lay, the ''Key-note" of the 
subject and the source from which he can obtain more 
light, if desired. With this end in view, we have 
drawn quite extensively upon the foregoing able re- 
view of the subject in hand. 

Definitions from various authoritative sources. — The 

definition of Messrs. Clark and Marshall in their elaborate 
work is as follows: 

"A corporation is a body or artificial person, con- 
sisting of one or more individuals and sometimes of 
individuals and other corporations, created by law, and 
invested by the law with certain legal capacities, as 
the capacity of succession, and the capacity to sue and 
be sued, to make contracts, to take, hold and convey 



to Private Business Corporations 11 

property, to commit torts and crimes and do other acts, 

however numerous its members may be, Hke a single 

individual." 

2 Clark & Marshall on Private Corporations, sec. 

I, p. 2. 

Annexed to the foregoing is an extensive enumera- 
tion of the phases which a corporation may assume : 

"A corporation, therefore, when it consists of more 
than one member, which is almost universally the case, 
may be regarded, according as the one view or the 
other may be necessary, either 

"i. As a legal body or entity in which the existence 
of the natural persons who compose it is merged, or, 

*'2. As a collection or association of natural persons 
vested with the capacity of existing and acting as a 
body. 

"i. As a body or legal entity, it is distinct from the 
members who compose it and as such has, 

''a. The capacity of succession, which is the capac- 
ity to exist as the same body for any length of time, 
notwithstanding the death, withdrawal or change of 
members. 

'*&. The capacity to enter into contracts in its cor- 
porate name like an individual. 

'V. The capacity to take, hold and convey property 
in its corporate name like an individual. 

'^d. The capacity to commit torts and crime with 
some exceptions like an individual. 



12 Corporation Law as Applied 

"e. The capacity to sue and be sued in its corporate 
name like an individual. 

"3. It is merely by a fiction of law that a corpora- 
tion is thus a legal entity distinct from its members. 
In reality it is a collection or association of natural 
persons who are created into a body for the purposes 
above enumerated, and it will be treated as such both 
in equity and law, whenever the fiction is urged to 
an intent and purpose which is not within its reason 
and policy." 

Clark and Marshall on Private Corporations, Vol. I., 
sec. I, p. 2. See long line of sustaining cases; 
also note. 

The definition given by Cook is : ''An artificial per- 
son like the State. It is a distinct existence, an exist- 
ence separate from its stockholders and directors.'^ 

Cook on Corporations, Vol. I., sec. i, p. 2. 
(Chicago, 1903, 5th Ed.), citing Chief Justice Mar- 
shall's opinion in the celebrated Dartsmouth College 
Case, 4th Wharton 636, and the language of Lord 
Coke : 

"An artificial being, invisible, intangible and exist- 
ing only in contemplation of law." 

The reference to the words of the learned and dis- 
tinguished Lord Coke calls for more than passing 
attention by the reader. 

The following extracts from Mr. Brice's excellent 
work are given at considerable length, because they 
illuminate the subject : 



to Private Business Corporations 13 

" 'A corporation is a person which exists in contem- 
plation of law only and not physically. It is a collec- 
tion of many individuals united in one body under a 
special denomination, having perpetual succession, un- 
der an artificial form, and vested by the policy of the 
law with the capacity of acting in several respects as 
an individual, particularly of taking and granting 
property, of contracting obligations and of suing and 
being sued, of enjoying privileges and immunities in 
common and of exercising a variety of political rights, 
more or less extensive, according to the design of its 
institution, or the powers conferred upon it at the 
time of its existence.' This is the description set 
forth by K3^d (i Kyd 13) and it is a fairly accurate 
description of the general nature of a corporation ag- 
gregate, but sufficient stress is not laid upon that which 
is its real characteristic in the eye of the law, viz., its 
existence separate and distinct from the individual or 
individuals composing it." 

Green's Brice's Ultra Vires (Stevens & Haynes' Ed., 
London, 1893), Part L, Chap, i, sec. i. 

'Tt is a fiction, a shade, a nonentity, but a reality for 
legal purposes. A corporation is only in abstracto — it 
is 'invisible, immortal and rests only in the intend- 
ment and consideration of law.' This is the descrip- 
tion given by Coke in the case of Suttons Hospital (10 
Coke's Rep., i, 23), and though exception has some- 
times been taken to it, and more especially that a corpo- 
ration is immortal, probably no better definition at 
once brief and accurate, can be given. The essential 



14 Corporation Law as Applied 

part of the notion Involved in the term corporation is 
its abstraction, the intangibihty of its existence, its be- 
ing composed of a physical being, or beings, through 
which it manifests its capacities and powers, but from 
which It Is totally distinct. This Is the one important 
' fact- The members of a corporation aggregate (note 
'and the individual who is constituted a sole corporate') 
may form their connection with such, have rights and 
privileges, and be under obligations and duties over and 
above those affecting them In their private capacity, 
but they get them by reflection, as It were, from the 
corporation. They Individually are not the corpora- 
tion — cannot exercise the corporate powers, enforce 
the corporate rights, or be responsible for the corpo- 
rate acts; while even at common law they can mutu- 
ally sue or be sued by the corporation or each other." 
Ibid, page 2. 

Name, and common seal, and perpetual Identity are 
essentials. Corporations enjoy, to some extent, attri- 
butes of immortality; but to say "They never die" is 
Incorrect, they do terminate. 

In the United States perpetual corporations are the 
exception. 

Dillon on Municipal Corporations, 91, says: 

"Continuous legal Identity and perpetual or Indef- 
inite succession under the corporate name exist not- 
withstanding successive changes by death or otherwise 
in the corporators or members of the corporation." 



to Private Business Corporations 15 

*'It conveys perhaps as tangible an idea as can be 
given by a brief definition, to say that a corporation 
is a legal person with a special name, and composed of 
such memibers, and endowed with such powers, and 
such only as the law prescribes. This simply denotes 
that, notwithstanding the lapse of time or alteration 
in the constitution of a corporation or the renewal, 
many times repeated, of all its members, or its recon- 
struction on a new basis and even with different ob- 
jects, the corporation itself remains the same — it does 
not import that it must or will continue forever." 

The case of Hospital vs. Sutton, Cooke's Reports 
(Fraser), Vol. V. pp. 253-307 inclusive, remains one 
of the leading cases on the subject of English corpo- 
rations, and like English corporation law generally, is 
much copied in this country. 

In Viner's Abridgment of Law and Equity, Sec- 
ond Ed., Vol. 6, pp. 258-9 (1792), it is said: 

"i. A corporation is a body politic consisting of 
material bodies, which joined together must have a 
name to do things that concern their corporations, or 
otherwise it is no corporation. 

"2. All the natural persons of the corporation are 
not the corporation, but are persons of which the cor- 
poration consists, but not wholly, for the name is a 
part, without which the corporation cannot be; also, 
the King may give power to a common person to name 
the persons and the name of the corporation, and when 



16 Corporation Law as Applied 

he hath done so, this corporation is not said to be 
made by the common person, but by the King." 

Ibid. 

In Bacon's Abridgment, Vol. II., 437 (Philadel- 
phia, i860), the definition is as follows, viz.: 

*'A corporation aggregate is an artificial body of 
men, composed of diverse constituent members ad 
instar corporis humani, the ligaments of which body 
politic or artificial body are the franchises and liber- 
ties thereof, which bind and unite all its members to- 
gether, and in which the whole frame and essence of 
the corporation consists." 

Mr. Justice Potter, in a note to the above, says : 

''A corporation is a body under an artificial form 
created by law, composed of individuals united in one 
body, under a common name or special denomination, 
the members of which succeed each other, so that the 
body continues the same notwithstanding the change 
of the individuals who compose it, and for certain pur- 
poses considered as a natural person (2 Kent's Com., 
215), vested with a capacity of taking and granting 
property, of suing and being sued, of enjoying privi- 
leges and immunities and of enjoying a variety of 
rights of other individuals or persons mor eor less 
extensive, according to the design of its institution, or 
of the powers conferred upon it either at the time of 
its creation or at any subsequent period of its exist- 
ence." 

(Citing, iKyd on Corporations, 13.) 



to Private Business Corporations 17 

'It is said to be an intelligent being, different and 
distinct from all persons who compose it. It has in- 
dividuality, the estate or rights of the corporation 
belong completely to the body and not to the individ- 
uals who compose it, nor can any one of them dispose 
of such estate or any part of it. In this respect the 
right to the property is different from the right held 
in common. What is due to the corporation is not 
due to any of the individuals who compose it, and 
debts due by such corporations are not due by the in- 
dividual members. 

"It is a legal person (sometimes said to be a politi- 
cal person, or body politic). In its legal existence it 
is capable, like a natural person, of enjoying a variety 
of franchises. Like franchises in one respect, it is 
expressive of great political rights. It is a special 
privilege, which does not belong to citizens generally 
of common rights. (2 Blackstone's Com's 37.) And 
in this country a corporation can only exist by virtue 
of the law of the state." 

Potter on Law of Corporations, Vol. L, p. 3, sec. 3, et 

seq.; citing: 

Bank of Augusta vs. Earle, 13 Peters, 519. 

Mr. Spelling, in his very clear, able and satisfactory 
work on corporations, says : 

''A corporation has been defined by writers and 
judges in varied phraseology and degrees of accuracy. 
All agree that it is purely a creation of law, with cer- 



18 Corporation Law as Applied 

tain rights in common with individuals and othei s that 
are distinctive, all of which must be held and exercised 
for the object for which it is created. While it is 
manifest that a corporation cannot, for any practical 
purpose, exist without members, yet, in strict legal 
contemplation, as has often been adjudicated and 
explained, the legal entity is something distinct and 
separate from those who employ it as an agency to ac- 
complish their objects, whether these be public or 
private, and it is equally difficult to discover any rea- 
son for incumbering the definition with a consideration 
of the corporation's term of existence. 

'There is nothing definitive in the idea of immor- 
tality, and besides, under modern laws, the term of 
corporate existence is usually limited, like a lease of 
real estate, to a number of years. Even when such 
is not the case, the length of a corporation's life always 
depends upon the will or disposition of its members 
to keep it alive. 

''It is also liable, like natural persons, to accident, 
and may at any time, as we shall see hereafter, have 
its term of existence cut short at the hands of the state, 
on account of the malfeasance or nonfeasance of its 
management. 

"A full and complete definition of a corporation can 
only be given by telling what are its rights, powers, 
duties and relations, and the legal and equitable prin- 
ciples which control it in all its parts and functions, 
and how they operate." 



to Private Business Corporations 19 

Spelling on Private Corporations, Vol. L, sec. i, p. 3, 
et seq. (New York, 1892.) 

Angel and Ames on Corporations, sec. i, have this 
definition to offer: 

"A body created by law, composed of individuals 
united under a common name, the members of which 
succeed each other, so that the body continues the same, 
notwithstanding the individuals who compose it, and 
is, for certain purposes, considered as a natural per- 



The Civil Code of Louisiana defines a corporation 
to be : 

"An intellectual body, created by law, composed of 
individuals, united under a common name, the mem- 
bers of which succeed each other, so that the body con- 
tinues always the same, notwithstanding the change 
of the individuals who compose it, and which for cer- 
tain purposes is considered as a natural person." 
Merrick's Revised Civil Code of Louisiana, Vol. L, p. 
102, art. 427 (old article 418). 

In Morawetz on Corporations, a work in much and 
deserved favor, the definition cites the words of Chief 
Justice Marshall in the Dartsmouth College Case, and 
that standard author, Kyd, adding : 

"The definition given by Kyd is not inconsistent 
with that of Chief Justice Marshall, when correctly 
understood. Kyd described a corporation as a collec- 



20 Corporation Law as Applied 

tion of many individuals authorized to act as if they 
were one person. Chief Justice Marshall, on the other 
hand, treats the collection of individuals constituting 
the corporation as a united body, and personifies it; 
while he considers the individuals who compose this 
body merely as component parts. It is apparent that 
both definitions describe the same thing regarded from 
different points of view.- While a corporation may 
from one point of view be considered as an entity, 
without regard to the corporators who compose it, the 
fact remains self-evident that a corporation is not in 
reality a person or a thing distinct from its constitu- 
ent parts. The word 'Corporation' is but a collective 
name of the corporators or members who compose an 
incorporated association, and when it is said that a 
corporation is itself a person, or being, or creature, 
this must be understood in a figurative sense only." 

'The conception of a number of individuals as a 
corporate or collective entity occurs in the earliest 
stages of human development, and is essential to many 
of the most ordinary processes of thought." 
Morawetz on Private Corporations, Vol. I., p. i, sec. i. 

A leading decision. — Probably the most important 
New York decision touching the question of Corpora- 
tion definition is Warner vs. Beers, 23d Wendell 
(N. Y.), 103 (including Bolander vs. Stevens). These 
cases were tried in the Court of Errors, then the Court 
of last resort in the State of New York, in 1840, Chan- 
cellor Walworth presiding. In the cases were the most 
distinguished counsel of that day, including William 



to Private Business Corporations 21 

Curtis Noyes and Messrs. Sandford, Fort, Kent and 
Ogden. 

The opinions were by the Chancelloi; and Senators 
Root and Verplank. 

The Court, in its decision, referred to the opinion 
of Chief Justice Nelson, and Bronson and Cowen, J. J., 
in that other celebrated case, Thomas vs. Dakin, re- 
ported in 22 Wendell, 9. 

At page 121 the learned Chancellor said: 

"In ascertaining the nature and properties of that 
indefinable, soulless body referred to in the Constitu- 
tion as a body politic or corporate, we shall certainly 
be misled, if we attempt to confine it to such artificial 
bodies as by the common law of England were created 
by Royal Charters, by virtue of the King's preroga- 
tive alone. Though such corporations which were 
thus created have existed in such various forms, and 
with so many combinations of powers, privileges and 
immunities that it is almost impossible to say what is 
or what is not a corporation by the common law by 
merely referring to the existence of any particular 
power, right, or privilege, as appertaining to an asso- 
ciation or commonalty of individuals. And from time 
immemorial, as at the present day, this privilege of 
being a corporation, or artificial body of individuals, 
with the power of holding their property, rights and 
immunities in common, as a legally organized body, 
and of transmitting the same in such body by an arti- 
ficial succession, different from the natural successions 



22 Corporation Law as Applied. 

of the property of individuals, has been considered a 
franchise which could not be lawfully assumed by any 
associated body without a special authority for that 
purpose from the Government or Sovereign power. 

'Trofessor Erskine, the learned Scotch Civilian, 
says : 'A corporation is composed of any number of 
persons, united or created into a body politic, to endure 
in continual succession, with certain rights and capaci- 
ties of purchasing and suing, etc., as appears most 
suitable to that special community, and most necessary 
for answering the purpose intended by it.' (Citing, 
1st Erskine, Justice, by Macallen, 190.)'* 

"Again, trading companies, whose duration is gen- 
erally limited by the grant to a certain number of 
years, are likewise proper corporations, because they, 
too, endure in continual succession while they subsist. 

''These definitions of a corporation, so far as such 
an invisible, artificial, intangible being, but which at 
the same time assumes so many various forms, is capa- 
ble of being defined by any general descriptive terms — 
are in substantial accordance with the definition given 
by Chief Justice Marshall, in the Dartsmouth College 
Case, and in the definition given by Kyd and by Angel 
and Ames ; and also in the Civil Code of Louisiana.'' 
(See each of the above authorities cited herein, supra.) 

Other leading cases — The leading case of Thomas 
vs. Dakin, cited in the above, was decided in the 
same court a year or so before. It illuminated the 
law regarding corporations as the same obtained in 



to Private Business Corporations 23 

New York State, and for that matter in almost all the 
United States, as well as in Great Britain and the 
British Colonies. 

Other citations are as follows: 
The President and College of Physicians, London, vs. 

Salmon, 2d Salkeld, 237-451 ; i Lord Raym, 680. 
Same Plaintiffs vs. Talbois, i Lord Raym, 153. 

2 Jacoby's Law Dictionary, p. 94. 

Denton vs. Jackson, 2d Johnson's Chancery Reports, 

(N. Y.) 320-324. 

While the last-named case is not particularly rele- 
vant, it is interesting, and the subject-matter is fur- 
ther treated of in Central Law Journal, Vol. II., p. 242. 

The United States Supreme Court has adopted sub- 
stantially the same definition. 

Marshall vs. Baltimore & Ohio R. R. Co., 57 U. S. 
(16 Howard), p. 314. 

In this decision, which was, pro tanto, the unani- 
mous opinion of the Court, that distinguished jurist, 
Mr. Justice Grier, said: 

''A corporation, it is said, is an artificial person, a 
mere legal entity, invisible and intangible. 

'This is, no doubt, metaphysically true in a certain 
sense. The inference also, that such an 'artificial en- 
tity' 'cannot be a citizen,' is a logical conclusion from 
the premises, which cannot be denied. 

"But a citizen who has made a contract and has a 
'controversy' with a corporation, may say, with equal 
truth, that he did not deal with a mere metaphysical 
abstraction, but with natural persons, that his writ 



24 Corporation Law as Applied 

has not been served on an imaginary entity, but on 
men and citizens. 

''The necessities and conveniences of trade and busi- 
ness require that such numerous associates and stock- 
holders should act by representation where the fac- 
ulty of contracting, suing and being sued is in a ficti- 
tious or collective name. 

"But these important faculties, conferred on them 
by State legislation for their own convenience, can- 
not be wielded to deprive others of acknowledged 
rights. It is not reasonable that those who deal with 
such persons should be deprived of a valuable privilege 
by a syllogism, or rather sophism, which deal subtly 
with words and names, without regard to the things 
or persons they are used to represent." 

In support of the doctrine that persons artificial are 
to be treated as persons natural, — see unanimous opin- 
ion of the California Supreme Court, in Douglass vs. 
Pacific Mail S. S. Co., 4th California 304 (306), 
wherein Ch. J. Murray says : 

"The word 'person' in its legal signification is a 
generic term, and was intended to include artificial as 
well as natural persons." 

The foregoing had to do with the construction of a 
California statute. 

In Comyn's Digest, under head of "Franchise," Vol. 
IV., p. 465, is given this short definition, viz. : 

"A corporation is a body constituted by policy, with 
a capacity to take or to do." 



to Private Business Corporations 25 

Another brief definition of a corporation is : 

"A collective body composed of different persons." 

Railroad vs. Knox & Co., 98 Ala., 121. Corey vs. 
Wadsworth, 118 Ala., 488. 
See in this connection the following cases : 

Paschell vs. Whitsett, 1 1 Ala., 472. 

Tuscaloosa Scientific, etc., Assoc, vs. Murphy, 58 Ala., 

54- 
Tuscaloosa S. & A. Ass'n vs. State, 58 Ala., 54. 

The definition of Morawetz, supra, is substantially 
adopted in American and English Encyclopedia of 
Law, Vol. 7, p. 632 (2d Edition). 

Again in Morawetz, it is said : 

''The rights and obligations of the association are 
in reality rights and obligations betweeil the share- 
holders ; yet, they can be measured and enforced only 
by regarding them as rights and obligations between 
the original shareholders and the association as an 
entity." 

Morawetz, sec. 227. 

'Tn equity, the relationship between the sharehold- 
ers is recognized whenever this becomes necessary to 
the attainment of justice; at law this relationship is 
not recognized at all." 

Ibid. 

There are instances wherein the courts are obliged 
to take cognizance of the real nature of corporations 
and to treat them as an association of individuals. 
Ibid, sec 230. 

Mr. Justice Beck in a leading case has said : 

"The legal rule which regards a corporation as an 



26 Corporation Law as Applied 

artificial person, to be barred only by acts done in ac- 
cordance with its charter which permits it to hold 
property as a natural person, and limits the interest of 
the shareholder therein to his shares, must all go down 
when they are attempted to be used as instruments of 
fraud by the dishonest and stand in the way of equity." 

Desmoines Gas Co. vs. West, 50 Iowa, 16-25. 



o 



"The same persons may fill the ofiice of president 
f two distinct corporations, and such identity does 
not, of itself, invalidate dealings between the two cor- 
porations." 

Leathers vs. Janney, et al., 41 Lawyers' Ann. Rep. 

1 120. 



Again we read : 

"Perhaps the best definition yet constructed is that 
given by the earliest writers on the subject, who define 
it to be 'A collection of individuals united in one body, 
under a special denomination, having perpetual suc- 
cession, under an artificial form, and vested by the 
policy of the law with acting in several respects as an 
individual, particularly of taking and granting prop- 
erty, or contracting obligations, and of suing and being 
sued, and of enjoying privileges in common, and ex- 
ercising a variety of political rights more or less ex- 
tensive, according to the design of its institution, or 
the powers conferred upon it, either at the time of its 
creation or at any subsequent period of its existence/' 
See Beach on Private Corporations, Vol. L, p. 4, sec. i. 



to Private Business Corporations 27 

In line with the foregoing, in Virginia the question 
of the ''Status" of a corporation was under considera- 
tion in 1890. In the opinion of the court in this quite 
prominent case, these words occur, viz. : 

'The question raised by the pleading in this cause 
is whether or not 'corporations' are included in the 
term 'persons.' For civil purposes, corporations are 
in law deemed persons." 

Baltimore & Ohio R. R. Co. vs. Gallahue's Armi'rs, 
12, Gratt (Va.), 663. 

This was the rule at Common Law; 2 Inst., 697-703. 

The Civil law. — The Code of Justinian treats of 
the ''Res Universitas" which was a corporate body 
that existed when a number of persons were so united 
that the laws take no note of their separate existence, 
but recognize them only under a common name which 
is not the name of any of them. 

(D. 3, 4, I); D. 3,4, 7, I.) 

All the members are considered in the law as a single 
unit or being (D. 46, I, 22) ; such units are some- 
times called fictitious persons because the corporate 
body, as such, may sue and be sued, receive or part 
with property, bind itself or bind others through some 
agent or syndic (D. 3, 4, i, i) ; its chief characteristic 
is that it does not necessarily die (D. 5, i, 76) ; and is 
not created by private agreement. It requires the au- 
thority of the Statute, ''Lex." "Senatus Consultum/' 
or Constitution of an Emperor (D. 3, 4, i pr.). 

A corporation is called "Collegium/^ "Company" or 
"Society." 



28 Corporation Law as Applied 

See Roman Law by Hunter (London Ed., 1885. Wm. 
Maxwell & Son), Vol. L, p. 314, et seq. 

The corporation is a distinct entity. — The great 

expounder of law, speaking of corporations, says: 

''But when they (individuals) are consolidated into 
a corporation, they and their successors are considered 
one in law ; as one person they have one will, which is 
collected from the sense of the majority of the indi- 
viduals; this one will may establish rules and orders 
for the regulation of the whole, which are a sort of 
municipal laws of the little republic, or rules and stat- 
utes may be prescribed to it at its creation, which are 
then in the place of natural laws." 

Blackstone's Com's, sec. 468, etc. 

Chief Judge Ruger, quoting and approving an ear- 
lier decision, said: 

"J^^dge Jackson, delivering the opinion of the court 
in a former case, says : 

" Tn no legal sense can the business of a corporation 
be said to be that of its individual stockholders. It is 
true that they have an interest in the business carried 
on, and an influence in controlling its conduct ; but they 
have created a legal entity to prosecute such business, 
make its contracts and be responsible for its obliga- 
tions. And that entity is alone responsible to persons 
dealing with it for the conduct of such business.' " 
People vs. American Bell Telephone Co., 117 N. Y., 

241. 



to Private Business Corporations 29 

That a corporatian is such a legal entity, distinct 
from its stockholders and creditors, is sustained in 
Watson vs. Borfile, ii6 Fed. Rep., 157, and 
Lange vs. Burke, 69 Arkansas, 85, the latter case 

citing. 
Farmers Loan & Trust Co. vs. N. Y. & N. R. Co., 
150 N. Y., 410-430- 

The extent to which this rule and principle has been 
upheld, and how far the courts have gone in sustain- 
ing the individuality of corporate existence, is seen in 

Fitzgerald vs. Missouri Pac. R'way Co., 45 Fed. 
Rep., 812, wherein it was held that: 

''A consolidated corporation which bears the same 
name in three States and has one board of directors 
and the same shareholders, and operates the road as 
one entire line and is designed to accomplish the same 
purpose, and exercises the same general corporate pow- 
ers in all the States, is not the same corporation in 
each State. The owner of all the stock and bonds of 
a corporation does not own the corporate property." 
Buffalo L. T. & S. D. Co. vs. Medina Gas Co., 162 

N. Y., 6y. 
Saranac & L. P. R. R. Co. vs. Arnold, 167 N. Y., 368. 

The whole trend of opinion is that each corporation 
is a separate and distinct "legal entity," and stands 
on its own bottom; however intimately they may be 
associated, or however closely they may be allied in 
their business relations with others, each corporation 
speaks and acts for itself and is alone responsible for 
its acts. 



30 Corporation Law as Applied 

The same principle is sustained in 
Richmond and I. Const. Co. vs. Richmond, etc., 68 
Fed. Rep., 105. 

In Lange vs. Burke, siipra^ — Judge Battle, in de- 
livering the opinion of the Court, said : 

"A corporation is an artificial being, separate and 
distinct from its agents, officers and stockholders. Its 
dealings with another corporation, although it may be 
composed in part of persons who own the majority of 
the stock in each company, and may be managed by 
the same officers, if they be in good faith and free from 
fraud, stand upon the same basis, and affect it and the 
other corporation in the same manner, and to the same 
extent that they would if each had been composed of 
different stockholders and controlled by different offi- 
cers.'' 

To the same effect see 
Waycross Air Line R. R. Co. vs. Offerman, etc., R. R. 
Co., 109 Georgia Rep. 827. 

A leading case was decided in the Supreme Court of 
Georgia in 1895, to wit: 

The Exchange Bank of Macon vs. The Macon C. Co., 
97 Ga., 5. 

The opinion of the Court was read by Mr. Justice 
Lumpkin, who ably reviews the prevailing decisions 
both in this country and in Great Britain. The opinion 
is in part : 

''Every corporation is a person — artificial, it is true, 
but nevertheless a distinct legal entity. Neither a por- 
tion nor all of the natural persons who compose a 



to Private Business Corporations 31 

corporation, or who own its stock, or control its af- 
fairs, are the corporation itself; and when a single 
individual composes a corporation he is not himself a 
corporation. In such case the man is one person, cre- 
ated by the Almighty, and the corporation is another 
person, created by law. It makes no difference in prin- 
ciple whether the sole owner of the stock is a man or 
another corporation. The corporation owning such 
stock is as distinct from the corporation whose stock 
is so owned, as the man is from the corporation of 
which he is the sole member. 

''That a business corporation is a separate legal en- 
tity, and as such owns the property pertaining to it, 
is recognized by Mr. Justice Nelson, in the case of 
Van Allen vs. The Assessors, etc., 70 U. S., 573, 584, 
as familiar law, and in this connection he cites 

Queen vs. Arnaud, 9 A. & E. (new series), 806, and 
quotes from Lord Denman as follows : 

'' Tt appears to me that the British Corporation is, 
as such, the sole owner of the ship. The individual 
members of the corporation are, no doubt, interested 
in one sense in the property of the corporation, as they 
derive individual benefits from its increase or lose 
from its decrease; but in no legal sense are the indi- 
viduals the owners.' 

'Tn Buton vs. Hoffman, 61 Wise. 20 s. c. 50 Am. 
Rep., 131, Mr. Justice Orton said: 

'' 'From the very nature of a private business corpo- 
ration, indeed of any corporation, the stockholders are 
not the private and joint owners of its property. The 



32 Corporation Law as Applied 

corporation is the real, though artificial, person substi- 
tuted for the natural persons who procured its crea- 
tion and have pecuniary interest in it, in which all 
its property is vested, and by which it is controlled, 
managed and disposed of. * * * In an ordinary 
copartnership the members of it act as natural persons 
and as agents for each other, and with unlimited lia- 
bility. But not so with a corporation; its members, as 
natural persons, are merged in the corporate identity." 

Ibid. 

In support of his position Mr. Justice Lumpkin cites 

numerous additional cases, among others 

Pullman P. Car Co. vs. Mo. Pac. Co., 115 U. S., 587; 
A. T., etc., Co. vs. Cochrane, 45 Kansas, 225 ; and 
"That most excellent work" — Cook on Corpora- 
tion Law, Vol. I., sec. 6, 

together v/ith the authorities mentioned in the notes. 

Authorities generally. — A review of some defini- 
tions of corporations will be found in "Thompson's 
Commentaries on the Law of Corporations," Vol. I., 
sec. 2. These, however, do not differ materially from 
those hereinbefore noted. Also, see "Waterman on 
the Law of Corporations," Vol. L, sec. 5, giving the 
definitions enunciated by Kyd and other early writers 
substantially as hereinbefore contained. 

Origin of business corporation idea. — A word as to 
the origin of the modern business corporation may not 
be out of place at the inception of our work. 

In many instances in the books the similarity be- 
tween stock corporations and partnerships has been 



to Private Business Corporations 33 

discussed. It would seem that the following extract 
from the standard and well-approved work of Angel 
and Ames will, for the purpose of this book, give all 
that is needed on that phase of the subject. 

Angel and Ames on Corporations, loth Ed., Boston, 
1875. PP- 32 and 33. 

''The difference between a company established for 
private hazard and profit by an act or charter of in- 
corporation and an ordinary copartnership is obvious 
and striking. The latter is simply a voluntary con- 
tract, and the result of such a contract, whereby two 
or more persons agree to combine their property or 
labor, or both, for the purpose of a common under- 
taking and the acquisition of a common profit ; and the 
gain or loss is to be proportionately shared between 
them. But this definition greatly falls short of a 
company established as a body corporate, which, 
though originating in a voluntary contract, is the re- 
sult not only of that, but of its confirmation by special 
legislative authority. This confirmation is indispensa- 
ble to enable the parties to the compact to sue and be 
sued, as a company, by a general name, to act by a 
common seal and to transmit their property in succes- 
sion. One, if not the principal and main inducement, 
in procuring an act of incorporation is to limit the risk 
of the partners and to render definite the extent of 
their hazard; for it is a perfectly well-settled rule of 
law that each member of a common partnership, 
whether active, nominal or dormant, is the accredited 
agent of the others, and, as such, has authority to bind 
them, to the extent of their private property, by any 



34 Corporation Law as Applied 

simple contract he may make, either respecting the 
goods or business of the concern, or by negotiable in- 
struments in its behalf to any person dealing bona fide. 
This personal responsibility of stockholders is incon- 
sistent with a perfect body corporate; and therefore, 
where an execution issued against a corporation by the 
name of the Tresident, Directors and Company,' with 
special instruction to the officer to take their bodies for 
want of estate, no authority was communicated to him 
thus to do. And the stockholders of a corporation do 
not become liable as partners, on notes given by the 
treasurer of the corporation, merely because, after or- 
ganizing under the act of incorporation, no corporate 
business is transacted or because the notes were given 
for debts beyond the corporate authority of the com- 
pany, 

''Section 42. — With the view of encouraging persons 
to an active and useful employment of their capital, a 
species of partnership has been introduced in differ- 
ent parts of the world, with a restricted personal re- 
sponsibility and it, on that account may be called a 
gwa^i-corporation, and therefore is entitled to at- 
tention in treating of private, civil and commercial 
corporations. 

"Though the English law does not admit of partner- 
ships with a restricted responsibility, they have been 
established in different parts of the Continent and in 
this country. 

'Tn France, by the celebrated ordinance of 1673, la 
Societe en commandite, or a limited partnership, was 



to Private Business Corporations 35 

introduced for promoting the interests of the mercan- 
tile community and the benefit of the public, by which 
one or more persons were associated with one or more 
sleeping partners, who furnished a certain proportion 
of capital and were liable only to the extent of the 
funds furnished. This peculiar kind of partnership 
has been continued by the new commercial code of 
France. It has been introduced in the civil code of 
Louisiana under the title of "Partnership in Com- 
mendam." On account of its tendency to invite dor- 
mant capital into useful and active employment, it has 
obtained a very considerable extent of favor through- 
out the United States, and accordingly it has been 
authorized by a legislative enactment in the States of 
New York, Massachusetts, Rhode Island, Connecticut, 
Vermont, New Jersey, Pennsylvania, Maryland, South 
Carolina, Georgia, Alabama, Florida, Mississippi, In- 
diana and Michigan. The provisions of the New York 
act have been taken, in most of the essential points, 
from the French ordinance and code above named; 
and the provisions for limited partnerships in the other 
States (and which were subsequent in point of time 
to that of New York) is essentially the same. It is 
the first instance, says Kent, in the history of the legis- 
lation of New York, that the statute law of any other 
country than Great Britain has been closely imitated 
and adopted." 

Hence it appears that the idea contained in the lim- 
ited partnership has been amplified, perfected and em- 



36 Corporation Law as Applied. 

bodied in the stock corporation, now in general use in 
conducting business ventures. 

Substantial harmony of definitions. • — The greater 
part of the differences of opinion and the consequent 
discussion concerning the definition of a corporation 
can, in the hght of the foregoing citations and quota- 
tions, be satisfactorily harmonized. In the first place, 
it is axiomatic that all powers spring primarily from 
the Sovereign, or the People. In the case of these the 
latter, the People, select their representatives, to wit, 
the legislature. To this body is given the power to 
create corporations and endow them with powers, 
rights, privileges and immunities; subject, however, 
to such duties, obligations and conditions as the legis- 
lature may deem proper. Such powers, etc., must be 
within the constitution and the law, State and Federal. 
And right here, in this power and capacity to create 
out of certain persons and their successors an ''artifi- 
cial person," a ''legal entity," a "body corporate," and 
giving it a name, make it a resident of the State, with 
power to buy and sell and to exercise the other powers, 
etc., belonging to natural persons, will be found the 
stumbling-block in the way of many who have dis- 
cussed the subject. The fact is that the corporation, 
at its inception, is composed not alone of the living, 
existing individuals who are described eo nomine in its 
charter, but of their successors as well, whoever they 
may be. These successors are a part of the corpora- 
tion, although time alone can disclose their identity. 
So that while the most upright and honorable men im- 



to Pnvaie Business Corporations 37 

aginable may be created into a corporation and, so long 
as these particular persons live, may attach to such cor- 
poration the idea of honesty and high character, the 
uncertainty of life and of human affairs renders it be- 
yond the realms of possibility to say what may be the 
character of their successors. There may be probabili- 
ties concerning the matter, even of the strongest kind, 
but these must surely yield to the actual course of 
events. Succession is accordingly one of the most 
vital elements of a corporation. 

Shares of stock are very convertible and pass from 
owner to owner with ease and quickness. A few 
months, nay, even a few weeks, may see the original 
corporators pass from the scene and the unknown suc- 
cessors seated in their place; how, then, can it be 
claimed with reason that the corporation and its stock- 
holders are one? 

So, then, the long-established and well-authenticated 
definitions must still prevail, notwithstanding all at- 
tempts to banish the "legal fiction.'' 

Substance of definitions. — The following is the sub- 
stance of the definitions as they relate to the distinction 
between the artificial body and its component parts, 
viz. : 

A* corporation is an "artificial person," a "legal en- 
tity," entirely separate, distinct and apart from the 
persons who own and hold its capital stock, just so 
long and so far as justice and equity require it to be 
thus considered ; but when it clearly appears that such 



38 Corporation Law as Applied 

"entity" and its concomitant powers, rights, etc., be- 
come weapons to defeat the purposes or objects for 
which the corporation was formed, or subversive of 
honesty and tending to some wrongful end — then, 
immediately, the corporation becomes, in Equity, an 
association of individuals whose wrong-doing the 
courts will restrain or remedy. 



to Private Business Corporations 39 

CHAPTER 11. 
Situs : 

The Corporate home. — Recapitulation. — Further au- 
thorities. — Situs as it affects foreign corporations. 

The corporate home. — A corporation may have a 
''local habitation/' be a resident and enjoy the privi- 
leges and protection of citizenship, so far as the limi- 
tations of its capacity permit. 

The situs, residence, or, if the term may be permit- 
ted in that connection, the ''home" of a corporation, is 
comprised within the confines of the State which cre- 
ated it. 

This is very clearly the consensus of the decisions. 

In Clark and Marshall the rule is stated in the fol- 
lowing words : 

"In a sense, and for some purposes, a corporation 
may be regarded as a citizen, resident or inhabitant of 
the country or State, by or under whose laws it was 
created." 

Vol. I., p. 351, sec 114. 

"In construing the Constitution of the United States 
and the acts of Congress in pursuance thereof, apply- 
ing to actions by or against corporations in the United 
States Supreme Court, a corporation is to be deemed 
a citizen of the State creating it." 

Ibid. 



40 Corporation Law as Applied 

"A corporation, as has been said, is an artificial 
being: it has no dwelling, either its office, its depots, 
or its ships. Its domicil is the legal jurisdiction of 
its origin, irrespective of its officers or the places where 
its business is transacted." 

Potter on the Law of Corporations, Vol. I., p. 12, 
sec. 10. 

In one of the earlier U. S. Supreme Court cases 
(Feby. Term, 1809), Chief Justice Marshall said: 

"As our ideas of a corporation, its privileges and dis- 
abilities, are derived entirely from the English books, 
we resort to them for aid in ascertaining its character. 
It is defined as a mere creature of the law, invisible, 
intangible and incorporeal. Yet when we examine the 
subject further we find that corporations have been 
included within terms of description appropriate to 
real persons." 

The Bank of the United States vs. De Neaux, 5 Cranch 
(U.S.), 61. 

In the same case the distinguished Chief Justice 
quotes Lord Coke : 

''Every corporation and body politic residing in any 
county, riding, city, or town corporate, as having any 
lands or tenements in any shire, "Quce propriiis man- 
ibus et sumptibus possident et hahent," are said to be 
inhabitants there within the purview of the statute." 

Ibid. 

It is appropriate to note that while the English cor- 
poration of that early period had elements which do 



to Private Business Corporations 41 

not pertain to the private business corporation of to- 
day, yet this ancient principle still prevails. 

Mr. Spelling says : 

''The law of the State where a corporation is created 
fixes, limits and qualifies its franchises, powers, ca- 
pacities and liabilities. 

"While the domicile of a corporation is in the legal 
jurisdiction of its origin and in its nature incapable of 
emigration, yet its charter may confer powers with- 
out territorial limitation and these may be exercised 
elsewhere if they are in confiict with no restriction of 
"local law." 
Spelling on Private Corporations, Vol. L, p. 92, sec. yG. 

"A corporation, like a natural person, can have but 
one legal residence, and in the Federal Courts no 
averment or proof to its citizenship elsewhere is per- 
rnitted. 

Ibid, p. 94, sec. 77. 

and vide cases cited. 

In 
Ex parte Schollenberger, 6 Otto, U. S. Supreme Court, 

369. 377 (1877), 
Chief Justice Waite said : 

"A corporation cannot change its residence or its 
citizenship. It can have its legal home only at the 
place where it is located by or under the authority of 
its charter; but it may by its agents transact business 
anywhere, unless prohibited by its Charter or excluded 
by local law. 



42 Corporation Law as Applied 

"A corporation can have but one legal residence, and 
that within the State or Sovereignty creating it, though 
comity allows it to do business within other jurisdic- 
tions." 

Chaffee vs. Fourth National Bank of N. Y., 71 Maine, 
514. 

**A corporation can have but one legal residence, and 
that must be within the state or sovereignty creating 
it, although, by comity, it may be allowed to do busi- 
ness through its officers or agents in other jurisdic- 
tions." 

Ireland vs. Globe Milling, etc., Co., 19 Rhode Island, 
I So (Supreme Court, 1895). 

Opinion of the Court by Mr. Justice Tillinghast. 

"A corporation has its domicil in the State from 
which it derives its existence." 

Halbrook vs. Ford, 153 Ills., 633. S. C, 46 Am. St. 
Reps., 917. 

To the same import as above see 
Combes vs. Keyes, 89 Wise, 296. 46 Am. St. Reps., 

839- 

Douglass vs. Phoenix Ins. Co., 138 N. Y., 209. 

And in 

Young vs. South Tredgar Iron Co., 85 Tenn., 189, 
the principle is sustained, at least by indirection, the 
case holding that the situs of a corporation determines 
the situs of its stock without regard to the locality of 
the stock certificate. 



to Private Business Corporations 43 

"Corporations are citizens and residents of the State 
under the laws of which they were created, and they 
cannot by engaging in business in another State ac- 
quire a residence there." 

Opinion of Mr. Justice Shiras (subsequently of the 
U. S. Supreme Court), in 

Fales vs. Chicago M. & St. P. Ry., 32 Fed. Rep., 
673, 679. 

The judgment of a court of competent jurisdiction 
of any particular State, holding that a corporation is 
a resident of that particular State, is binding upon 
the Federal Courts. 
Fitzgerald vs. Missouri P. Ry. Co., 45 Fed. Rep. 812. 

The case of 

Plimpton vs. Bigelow, 93 N. Y., 592, 
has often been approvingly cited in the courts through- 
out the United States. The opinion is by that very 
able and distinguished jurist, Mr. Justice Andrews, 
and contains the following : 

"But we regard the principle to be too firmly settled 
by repeated adjudications of the Federal and State 
Courts to admit of further controversy, that a cor- 
poration has its domicil and residence only within the 
bounds of the Sovereignty which created it; it is in- 
capable of passing individually beyond that jurisdic- 
tion, and so may not be deemed present in a State 
other than that of its origin, although its officers are 
present and it transacts business in that State." 
Citing, Bank of Augusta vs. Earle, supra. 
La Fayette Ins. Co. vs. French, 18 How. (U. S.), 404. 



44 Corporation Law as Applied 

Recapitulation — It is by no means going too far to 
say that this holding of the New York Court of Ap- 
peals has established the following points : 

(a) That a corporation has a domicil and residence 
within the bounds of the State or Sovereignty which 
created it. 

{h) That such corporation is not capable of being, 
and cannot be, present or exist beyond or outside of 
such bounds, although, as will be seen, business may be 
carried on without such bounds through agents and 
representatives. 

(c) That a corporation possesses the right to be 
called and treated as a resident, and even be said to 
be a "citizen," by means of the ''fiction" above de- 
scribed. 

Further authorities. — Chief Justice Andrews, in a 
subsequent case, sustains his opinion in Plimpton vs. 
Bigelow, supra, as follows : 

''A domestic corporation has at all times its exclu- 
sive residence and domicil in the jurisdiction of its 
origin." 
Douglass vs. Phoenix Ins. Co., 138 N. Y., 209. 

Some further remarks will be made and citations 
given affecting the home of the corporation, in a sub- 
sequent chapter on Foreign Corporations and the Com- 
ity of the States (see Chapter III.), as the latter sub- 
ject also involves the question of the situs or domicil 
of the corporation. 



to Private Business Corporations 45 

Concerning the "domicil" of corporations, Dicey 
thus speaks : 

Rule 19. — The domicil of a corporation is the place 
considered by law to be the center of its affairs, which 
(i) In the case of a trading corporation is its prin- 
cipal place of business, i. e., the place where the ad- 
ministrative business is carried on. (2) In the case 
of any other corporation is the place where its func- 
tions are discharged. 

Comment : 

"The conception of a home or domicil, depending as 
it does on the combination of residence and intention 
to reside, is in its primary sense applicable only to 
human beings; but by a fiction of law an artificial 
domicil may be attributed to legal beings or corpora- 
tions." 

Dicey on the Conflict of Laws, Rule 19, etc., p. 154 
(London Ed., 1896). 

An interesting case touching the question of corpo- 
ration domicil is 

Aspinwall vs. The Ohio & M. R. R. Co., 20 Indiana, 
492. 

Therein Mr. Justice Perkins enunciates the rule as 
to situs as follows : 

"i. The authority given by the legislature of Indi- 
ana to the corporation created by that body to own and 
manage property in Ohio did not include in it the au- 
thority to the corporation to change its domicil in that 
State. 



46 Corporation Law as Applied 

"2. The authority given to the Indiana corporation 
by the legislature of Ohio to act in that State did not 
confer upon it, in the absence of authority from Indiana, 
the right to migrate to that State, as Indiana Corporate 
State laws as a general proposition do not operate 
extra-territorially. . . . 

'Turning to Grant on Corporation, an English book, 
we find it states on side page 14, 'That the old law was 
that every corporation must be constituted (in the char- 
ter) of some place.' But it is prestuned that this rule has 
long been obsolete, if it were ever good, except in the 
case of corporations entrusted with some local juris- 
diction, or with powers and privileges, the exercise of 
which was from their nature connected with some lo- 
cality. * * *" 

"Corporations, in this country, are treated as hav- 
ing domicils or residences, in determining the question 
of jurisdiction as between the States and the U. S. 
Courts and also upon general principles." 

See cases cited. 

A corporation is a resident of the State, alone, which 
creates it. 
Cook vs. Hager, 8 Colorado, 386. 

While it is competent to prohibit a foreign corpora- 
tion from acquiring a domicil in the State, it cannot be 
prohibited from selling, by contracts made there, its 
machinery manufactured elsewhere; for that would be 
to regulate commerce among the States. 
Utlery vs. The Clark-Gardner Lode Mining Co., 4 Col- 
orado, 369. 
Citing: Cooper Mfg. Co. vs. Ferguson, 113 U. S.,727. 



to Private Business Corporations 47 

Situs as it affects foreign corporations. — Corpora- 
tions are deemed ''persons" when the circumstances in 
which they are placed are identical with those of nat- 
ural persons, expressly included in the statutes. 
Home Ins. Co. vs. City Council of Augusta, 50 Ga., 
530. 

In the above case Mr. Justice Trippe discussed the 
question of "foreign" and "domestic" corporations, 
and the question of how far corporations are to be 
treated in the same manner as natural persons. 

"Foreign" corporations and their powers without 
the State is the subject discussed in 
Union Branch R. R. Co. vs. East Tennessee, etc., R. R. 

Co., 14 Ga., 327; 
also in 

Port Royal R. R. Co. vs. Hammond, 58 Ga., 527. 
Wood, etc., Hydraulic Mining Co. vs. King, 45 Ga., 34. 

In the first (i. e., 14 Ga., 327), Mr. Justice Starrcs 
said: 

"It is true that a corporation can have no legal ex- 
istence out of the sovereignty by which it is created, 
yet it does not ensue that its existence as an artificial 
person, capable of contracting, may not be recognized 
elsewhere. In the language of Chief Justice Teney, in 
Bank of Augusta vs. Earle, 13 Pet., 588, 
its residence in one State creates no insuperable objec- 
tion to its contracting in another." 
page 341. 

In 
Port Royal R. R. Co. vs. Hammond, supra. 



48 ' Corporation Law as Applied 

Warner, C. J., said : 

"The defendant is a Georgia corporation created 
by an act of the general assembly of this State, and its 
powers and duties are to be exercised and performed 
within the territorial limits of the State." 

A private corporation whose charter has been 
granted by one State cannot hold meetings and pass 
votes in another State. See 

Land Grant Ry. Co. vs. Commrs. of Coffee Co., 6 
Kansas, 253. 

Opinion of Mr. Justice Valentine (2 cases). 

The case sustains the antiquated doctrine that a cor- 
poration cannot exist without the confines of its 
creating State. 

''A corporation created by the State of Pennsylvania, 
which cannot have an office or do business in the State, 
cannot do business in the State of Kansas." 
Land Grant, etc., Co. vs. Commrs. of Coffee Co., 6 
Kansas, 245. 

''Under the rules of 'comity' a foreign corporation 
may by its agents usually exercise in another State all 
the powers which it could exercise in its own State, 
which are not repugnant to the laws and institutions, 
nor prejudiced to the interests of such other State." 

Ibid. 

In the foregoing is embodied a concise statement of 
the whole subject. 



to Private Business Corporations 49 

''A corporation obtains a residence, not by its own 
act, but by legal authority." 
Newport, etc., Bridge Co. vs. Waverly, 78 Ky., 523. 

"'^ ^ "^ But in no case which has come under our 
observation, either in the State or Federal courts, has 
a corporation been considered a citizen within the 
meaning of that provision of the Constitution, which 
declares that the citizen of each State shall be entitled 
to all privileges and immunities of the citizens of the 
several States." 

Paul vs. Virginia, 75 U. S. (8 Wall), 168 (1868). 

''A corporation of Utah is a citizen of the State." 
Postal Teleg. Cable Co. vs. Oregon Short Line Ry. 
Co., 23 Utah, 474. 

In 
Graham vs. Baston, etc., R. R. Co., 118 U. S., 161, 162, 
it is held: 

''A railroad corporation which, though made up of 
distinct corporations, chartered by the legislatures of 
different States, has a capital stock which is a unit 
and only one set of shareholders, who have an interest, 

by virtue of their ownership of the stock, in all its prop- 
erty elsewhere, has a domicil in each State, and the 
corporations or shareholders can, in the absence of 
any statutory provision, do the corporate business in 
any one State, so as to bind the corporation as to its 
property elsewhere." 



50 Corporation Law as Applied 



CHAPTER III. 

Foreign Corporations and Comity. 

A discussion of the principles involved. — Authorities 
considered. 

A discussion of the principles involved Some con- 
fusion has naturally arisen in the decisions and text- 
books, growing out of the inaccurate terms which 
are customarily employed to designate respectively: 

1. Corporations which were created and have their 
home ofhces without the particular State; and, 

2. Those whose domiciles are within such State. 
For all except those persons who are especially 

versed in corporate affairs this confusion of terms is 
both unfortunate and misleading. 

The primary cause of this difficulty lies in the com- 
plicated system of our Government and in the fact that 
the names originally selected to express the relation of 
these corporations to the creating powers were ill- 
chosen. 

Each sovereign State, while retaining and continu- 
ing to exercise the power to institute and govern corr 
porate bodies, is a distinct and separate entity; yet, all 
these States are bound together by the Constitution, 
and by numerous ties, into one community, and flour- 
ish under one common name. 



to Private Business Corporations 51 

This condition, however, has no recognition in the 
words employed to designate resident and non-resident 
corporations of the several States, and hence the con- 
fusion above noted. The terms "domestic" and "for- 
eign" have alone been used, and then only to point 
out the fact as to residents in each particular State; 
whereas, by general consent, these words have a wider 
significance in their usual application, and refer to the 
bounds of the United States rather than to the confines 
of any of its component States. The word "foreign," 
then, when applied by a citizen of New York to a real 
or artificial person domiciled within the State of Con- 
necticut or New Jersey, is out of place and entails a 
misnomer. 

In aid of accuracy of expression there should be em- 
ployed three terms to describe as many classes, viz. : 

"Resident," that which is domiciled within the cre- 
ating State. 

"Domestic," whose domicil is in another State, 
Territory or colonial possession. 

"Foreign," w^hose domicil is without the confines 
of the United States. 

It certainly appears anomalous that a bolt of cloth 
manufactured in the State of Rhode Island should be 
called "domestic" in the State of New York, while 
the company which manufactured it should be known 
as "foreign." 

Notwithstanding this anomaly, we are compelled to 
use the terms as they are now current. As it is, the 
"domestic" corporation of one State is "foreign" in 
the next, and thus a system of nomenclature appears 



52 Corporation Law as Applied 

to be forced upon us in connection with the present 
work; and we use the terms "domestic" and "foreign" 
as is customary to the profession and in the classifica- 
tion in vogue. 

It is of these "foreign" corporations as a class that 
this chapter treats. 

It has been laid down, as hereinbefore noted, that a 
corporation can act only within the confines of the 
State which created it; and the general principle is, 
that beyond those confines its attempts to exercise any 
of its powers are absolutely futile and of no effect. 
Such is the principle and the technical state of affairs. 
But by the "comity" of the States (a discussion of 
which as to its origin, etc., cannot be entered upon 
here), all of the States allow the "foreign" corporation 
to transact business within their borders by and 
through the policy of permitting such "foreign" cor- 
poration to appoint and authorize duly accredited offi- 
cers and agents to conduct their affairs. Thus, the 
business proceeds with the same practical effect and ac- 
complishes the same objects as if the corporation itself 
had been domiciled within the "foreign" State. 

It must, however, be remembered that the perform- 
ance of such acts is purely by sufferance and is sub- 
ject to the rules, regulations and conditions prescribed 
and imposed by the sister State, and that any violation 
thereof may debar such "foreign" corporation from 
further indulgence. There is also the ever present 
provision that the business to be transacted is not con- 
trary to the laws of the State exercising the comity. 



Ho Private Business Corporations 53 

The whole subject is one not only of great interest, 
but of great importance, and has been the cause of 
much discussion in the courts. 

Authorities considered. — Harlan, J., in 

Christian Union vs. Yount, loi U. S., 352, 356-358, 
has entered quite fully into the question of ''comity" : 

"Although, as a general proposition, a corporation 
must dwell in the State under whose law it was cre- 
ated, its existence as an artificial person may be ac- 
knowledged and recognized in other States. 

"Its residence in one State creates no insuperable 
objection to its powers of contracting in another. 
Runyan vs. The Lessee of Castor, 14 Pet. U. S., 122. 

"In Cowell vs. Springs Co., 100 U. S., 55, we said: 
Tf the policy of the State or territory does not permit 
the business of the 'foreign' corporation to acquire or 
hold real property, it must be expressed in some affirm- 
ative way; it cannot be inferred from the fact that its 
legislature has made no provision for the formation 
of similar corporations, or allow corporations to be 
formed only by the general law. Telegraph companies 
did business in several States before their legislatures 
had created or authorized the creation of similar corpo- 
rations ; and numerous corporations existing by special 
charter in one State are now engaged without question 
in business in States where the creation of corpo- 
rations by special enactment are forbidden.' In har- 
mony with the general law of comity obtaining among 
the States composing the union, the presumption should 
be indulged that a corporation of one State, not forbid- 



54 Corporation Law as Applied 

den by the law of its being, may exercise within any 
other State the general powers conferred by its own 
charter, unless it is prohibited from so doing, either in 
the direct enactments of the latter State, or by its public 
policy to be deduced from its general course of legis- 
lation, or from settled adjudications of its highest 
court." 

In regard to the comity of the States and the treat- 
ment of corporations of other States by local courts, the 
following is of interest, as showing the prevailing 
spirit : 

"* * * The powers thus conferred are broad 
enough to cover a trust of this character, there being 
nothing in other portions of the charter, or the laws of 
the State of New York, which, by necessary implica- 
tion, limits the grant. The Supreme Court of New 
York, by confiding this trust to the charge of the cor- 
poration, necessarily decided that the corporation had 
powers to execute it and although such decision is not 
absolutely binding upon us, when property rights in 
this State are drawn in question, yet, in the absence 
of valid reasons assigned to the contrary, it is neces- 
sarily controlling." 

Opinion of Rombauer, P. J., in Glasser vs. Priest, St. 
Louis and Kansas City Court of Appeals Reports, 
Vol. XXIX., I (1887). 

The very learned Mabry, C. J., writes as follows, 
in a leading case : 

'Tn case of Bank of Augusta vs. Earle, 13 Peters, 
519, it is said: ^A corporation can have no legal exist- 



to Private Business Corporations 55 

ence out of the boundaries of the sovereignty by which 
it was created.' It exists only in contemplation of law 
and by force of the law ; and where that law ceases to 
operate, and is no longer obligatory, the corporation 
• can have no existence.' It must dwell in the place of 
its creation and cannot migrate to another sovereignty ; 
but though it must live and have its being in that State 
only, yet it does not by any means follow that its exist- 
ence there will not be recognized in other places, and 
its residence in one State creates no insuperable objec- 
tion to its power of contracting in another. It is in- 
deed a mere artificial being, invisible and intangible; 
yet it is a person for certain purposes, in contempla- 
tion of law, and has been recognized as such by the 
decisions of this court." 

The same distinguished chief justice held in the 
same case, in substance, — that where a corporation has 
been legally created and organized under the laws of 
a sister State for the transaction of any business there, 
it may, by comity existing between the. States, transact 
business in the State, provided it be not in contraven- 
tion of our laws or public policy. 
Duke vs. Greenfield, 19 Southern Rep., 172 (Florida). 

Again, the same approved authority held that : 
''A corporation created under the laws of one State 
could not hold corporate meetings in another for the 
purpose of organizing the corporation, or performing 
any strictly corporate functions in its organization." 

Ibid. 



56 Corporation Law as Applied . 

A corporation organized in another State may trans- 
act business in this State (Arkansas), subject to the 
conditions prescribed with reference to foreign corpo- 
rations. 

Boyington vs. Van Etten, 62 Ark., 6^^. 

A New Jersey corporation which purchases the prop- 
erty of corporations of Colorado and lUinois, and 
complies with the statutes of Colorado, relative to for- 
eign corporations, by designating a place of business 
in that State, does not in all respects become a Col- 
orado corporation by virtue of the Colorado statute. 
Rust vs. United Waterworks Co., 70 Fed. Rep., 129. 

Concerning the right of domestic shareholders to 
restrain foreign shareholders, see 
Brown vs. Republican Mountain Silver Mines, 55 Fed. 

Rep., 7. 

The principle that a corporation may be under the 
joint recognition and control of more than one State, 
without impairment of chartered rights, is sustained 
by the opinion of Starrs, Ch. J., in Bishop vs. Brainerd, 
supra (28 Conn., 289) : 

"Nor do we see any objection, technical or otherwise, 
to the parting, by two or more States unitedly, in the 
exercise of their sovereign authority, with such of 
their respective forms as shall be necessary in order 
to confer upon persons, natural or artificial, the fran- 
chise or privilege of being a corporation, and with such 
powers and privileges as they shall deem it proper to 
grant to them, and this power has been not unfrequent- 
ly exercised by States without question or objection." 



to Private Business Corporations 57 

"It would be a delicate matter for this court to de- 
clare the acts of a sister State invalid, on the ground 
of a supposed conflict with the constitution of that 
State." 

Ryan vs. Vallingdigham, 7 Ind., 416. 

The statutes of Indiana define a foreign corporation 
to be one created by or under the laws of any other 
State, government or country. 

Daly vs. The Nat. Life Ins. Co., 64 Ind., i. 

Opinion by Hawk, Ch. J. 

"Under the rules of 'Comity' a foreign corporation 
may by its agents usually exercise in another State all 
the powers w^hich it could exercise in its own State, 
which are not repugnant to the laws and institutions, 
nor prejudicial to the interests, of such other State." 
Valentine, J., in Land G. Ry. Co. vs. Comm'rs of 
Coffee Co., 6 Kansas, 245-254. 

"Foreign" corporations are entitled to do business 
in any other State outside of their own home State 
only through the comity existing among the States. 
State vs. Hammond Packing Co., no Louisiana Rep. 

180. 

"This 'Comity' may be modified or withdrawn under 
statute enacted in pursuance of an article of organic 
law, provided the modification or withdrawal does not 
come in conflict with the paramount laws of the 
Union." 

Ibid. 

Citing: Bank of Augusta vs. Earle, 13 Peters, 588. 



5S Corporation Law as Applied 

The above case holds the doctrine that the sister 
State may, if she so chooses, prohibit the corporations 
of other States from doing business within her terri- 
tory. 

Citing: Paul vs. Virginia, 8 Wallace, 177 (75 U. S.). 
This rule is affirmed in Ducat vs. Chicago, 10 Wal- 
lace, 410-415 {yy U. S.). 

"A State may permit foreign corporations to do 
business within its confines within limits and such 
rules, terms and conditions as it may prescribe not in- 
consistent with laws, etc., of the United States." 
Cousens vs. Lovejoy, 81 Maine, 467 (Syllabus). 

The question of foreign corporations, with particular 
regard to their taxations, is treated of in : 
People ex rel Penn. R. R. Co. vs. Wemple, 138 N. Y., 

I. 
People ex rel Edison Electric Light Co. vs. Campbell, 
138 N. Y., 543. 

In Virginia the right of a State to forbid foreign 
corporations to transact business within its borders is 
asserted : 
Slaughter vs. Commonwealth, 13 Grattan (Va.), y6y. 

Comity between the States authorizes a corporation 
to exercise its charter powers within another State; 
but it does not permit the exercise of a power when the 
policy of that State, distinctly marked by legislative 
enactments or constitutional provision, forbids it. 
McDonough vs. Murdoch, 15 How., 367 (56 U. S.). 

The following decision displays the fact that courts 
of equity will disregard the principle of comity and 



to Private Business Corporations 59 

assume to dictate the conduct of foreign corporations, 
when right and justice so require : 

'The defendants Greene, the Cobre Company, the 
Cananea Company and the Greene Company, are all 
properly before the Court. The Court will, therefore, 
have jurisdiction of the parties, and may, we think, 
without infringing upon any rule of comity, or upon 
this rule forbidding interference with the internal af- 
fairs of a foreign corporation, try the issue to this con- 
spiracy and fraudulent agreement, under which it is 
proposed on the part of the appellants to divest the 
Cobre Company of all its property without considera- 
tion, and may, if the facts show and the circumstances 
then existing seem to warrant that course, perpetually 
enjoin the consummation of such fraudulent contract 
and transfers of the property of the Cobre Company, 
and require an accounting and compel the restoration 
of any of its property appropriated by the defendants, 
even though such decree will operate upon property 
beyond the jurisdiction of the court/' 

Hallenburg vs. Greene, supra, 66 App. Div., 590 (De- 
cember, 1901). 

"The comity of nations distinctly recognizes the 
right of foreign incorporated companies to carry on 
business and make contracts outside of the country in 
which they are incorporated, if consistent with the pur- 
poses of the corporation, and not prohibited by its 
charter and not inconsistent with the local laws of the 
country in which the business was carried on, subject 
always to the restriction and burthens imposed by the 



60 Corporation Law as Appli?d 

laws enforced therein; for there can be no doubt that 
a State may prohibit foreign corporations from trans- 
acting any business whatever, or it may permit them 
to do so upon such proper terms and conditions as it 
may prescribe." 

Canada Pacific Ry. Co. vs. W. U. Tel. Co., XVIL, 
Canadian Sup. Ct., 151. 

In the above Chief Justice Sir W. J. Ritchie quoted 
from Dicey's Law of Domicile, Rule 42, 198: 

"The existence of a foreign corporation duly created 
under the law of a foreign country is recognized by 
our courts. 

"The principle is now well established that a corpo- 
ration duly created in one country is recognized as a 
corporation by other States. Thus it is a matter of 
daily experience that foreign corporations sue and are 
sued in their corporate capacity before English tri- 
bunals.'* 

The distinguished Chief Justice also cites : 
Story on Conflict of Laws, Chap. IV., sec. 106: 

"The power of a corporation to act in a foreign 
country depends both on the law of the country where 
it was created and on the law of the country where it 
assumes to act. It has only such powers as were given 
to it by the authority which created it. It cannot do 
any act by virtue of those powers in any country where 
the laws forbid it so to act. It follows that every 
country may impose conditions and restrictions upon 
foreign corporations which transact business within 
its limits." 



to Private Business Corporations 61 

Citing, Liverpool Ins. Co. vs. Man., lo Wall (U. S.). 

566. 
Att'y Gen. vs Bay State, etc., 99 Mass., 148. 
Barr vs. Poole, 12 N. Y., 495, and 
Phoenix Ins. Co. vs. Comm., etc., 5 Buch (Ky.), 68. 

He also quoted extensively and approvingly the cele- 
brated case of Bank of Augusta vs. Earle (13 Peters, 
U. S., 588). 

The question of the powers of foreign corporations 
was before the Court of Appeals of the District of 
Columbia, in the case of the Eastern Trust and Bank- 
ing Co. vs. Willis, Vol. VL, App. Cases, D. C, p. 375 
(Tucker, 1895). 

The appellant in this case, by Mr. Leighton of coun- 
sel, contended that a charter of incorporation imparts 
to the body corporate individuality and personality. 
Within its scope, terms and provisions, the corporation 
may do whatever a natural person, acting in his legal 
capacity, might do. This faculty thus created (it was 
insisted), it possesses and may exercise as certainly 
as an individual, not only in the place of its creation, 
but elsewhere, unless forbidden by law or the policy 
of the foreign State. 

Citing: Lathrop vs. Bank, 8 Dana, 114; 
Ins. Co. vs. Cross, 18 Wis., 119; 
Cowell vs. Springs Co., 100 U. S., 56. 

The opinion of the court in the case was delivered 
by Mr. Justice Shepard, who said : 

"* * * The terms of the charter are ample to 
cover all the powers it may exercise under said trust 



62 Corporation Law as AppUed 

deed, and there is nothing therein to indicate that its 
corporate powers can only be exercised within the lim- 
its of the State of its creation (Maine). Appellant 
had the undoubted right, in so far as its act of incor- 
poration is concerned, to do business in the District of 
Columbia, to accept trusts to be performed therein 
and to sue in its courts." 
(Citing, Bank of Augusta vs. Earle, supra.) 

"The mere fact that the laws prevailing in the Dis- 
trict of Columbia at that time did not authorize the 
organization of corporations with the same powers 
that had been conferred upon appellant by the laws of 
Maine, is not sufficient to prevent it from the exercise 
of its powers in said District. A settled policy of 
prohibition is not to be inferred from the mere absence 
of legislature upon the subject. This is the well-estab- 
lished doctrine of the Supreme Court of the United 
States." 
(Citing, Cowell vs. Springs Co., lOO U. S., 55-59.) 



to Private Business Corporations 63 



CHAPTER IV. 
Rights and Powers. 

Relation to preceding chapters. — Sources of corporate 
powers. — Charter as a source of powers. — Enum- 
eration of principal powers. — Extent of powers. — 
Powers by implication. — Limitations of powers. 

Relation to preceding chapters. — Having devoted 
the First Chapter to the much-discussed question of 
what private business corporations are, with an ap- 
propriate reference in the Second Chapter to the ques- 
tion of their situs, and having in the preceding chapter 
touched upon their rights beyond the "home jurisdic- 
tion," it now becomes necessary to enumerate, in a 
general way, what rights and powers these corpora- 
tions enjoy, reserving for later consideration the duties 
and obligations which accompany and qualify the 
same. 

Sources of corporate powers. — And before speaking 
of these powers and rights, it seems fitting in the first 
place to turn our attention briefly to the source from 
whence all these various rights, powers and privileges 
are derived. 



64 Corporation Law as Applied . 

This, like the subject of corporate definitions, has 
been greatly discussed, occasioning an accumulation of 
learned disquisitions, in which there has appeared con- 
siderable diverseness of opinion with some contradic- 
tion. 

While it is not within the scope of this work to offer 
extended dissertations upon the fundamental questions 
which affect corporations, it is not only appropriate 
but imperative, for a full and complete understanding 
of the subject, that there should be briefly outlined 
some of the underlying principles which have a direct 
bearing upon the situation. Without a definite knowl- 
edge and appreciation of these, the tenor and effect of 
the many extracts hereinafter contained cannot be 
clearly understood. 

Charter as a source of powers. — It is a well known 
elementary truth that all the powers and rights which 
are exercised and enjoyed by corporations come to them 
by means of a Charter : In England, it is a gift of the 
Crown, but in these United States (concerning which 
it is intended more particularly to speak), it is a 
grant from the Sovereign People of each State, by and 
through their several legislatures, and sometimes— 
but rarely — from the Whole People, through their 
Federal representatives. 

It has been said by some that the corporation itself 
is the source of all its powers. But while these state- 
ments appear contradictory, this objection disappears, 
together with the confusion of ideas from whence it 
sprung, when we note that after the corporation has 



to Private Business Corporations 65 

been created by the legislature and given life and has 
been sent forth upon its course, it exists of itself as a 
distinct, self-contained and separate entity, and may 
go on without aid or assistance dehors itself, to per- 
form the acts and accomplish the purposes of its cre- 
ation, siii juris. Thus, by the gift of the People, 
through the delegated power of the legislature, the 
corporation does become the source of its own power, 
to the extent and within the limitations of its char- 
tered rights. And here it is proper to state w^hat it 
is necessary to keep in mind when contemplating cor- 
porate rights and powers, namely, that in the Federal 
Government and in the various States, and, in fact, in 
all popular governments, the People are extremely 
tenacious of their rights and powers, and that they re- 
linquish or delegate them to others only so far as the 
exigencies of government and the welfare and pros- 
perity of the commonwealth demand; ever and always 
retaining and reserving to themselves, with jealous 
care and insistence, every other power and right. 

The truth of the foregoing makes it evident that our 
representative bodies, both State and Federal, have, 
strictly speaking, no inherent powers to change basic 
rights : In fine, they possess no powers but those 
expressly conferred upon them by the People — in- 
cluding, of course, all such incidental powers as neces- 
sarily accompany those specifically named and con- 
ferred. 

If, as has sometimes occurred, the welfare of the 
State or Federal Government requires the exercise and 



66 Corporation Law as Applied 

use of some of these reserved powers, the People them- 
selves must be confronted with the situation. 

Being thus appealed to, they must say specifically 
whether such powers shall or shall not be exercised, or 
they may otherwise determine the matter. 

Representative bodies accordingly have, strictly 
speaking, no inherent powers, nor any powers except 
such as originate in, and come to them through, the 
free will of the People. 

This is the only theory which satisfactorily explains 
the origin of our system of jurisprudence, including 
that branch constituting Corporation Law, and is a^ 
the same time in strict conformity with the spirit and 
genius of a government of, for and by the sovereign 
People. 

Thus we see that when a corporation is created, 
either by a specially granted charter or by virtue of 
and pursuant to a general incorporation law, the cor- 
poration can only possess such powers, rights, privi- 
leges and immunities as the creating legislature gave, 
and which it had the right and power to give. To enu- 
merate in detail and define all the powers, rights, privi- 
leges and immunities which corporations may receive 
from the People, and may exercise and enjoy, would 
be beyond the limit and scope of this work; they will, 
however, be noted here in a general way, while certain 
of them, because of the great amount of litigation 
past, present and prospective in which they are impor- 
tant elements, will be dwelt upon somewhat in extenso 
at a later place. (See Chapters V., VIII. , IX.) 






to Private Business Corporations 67 

Enumeration of principal powers. - — In the text- 
books we find that the powers of corporations in gen- 
eral are stated to be : 

(a) To act as an artificial person. 

{h) To continue in succession. 

{c) To have a distinctive name. 

{d) To have a common seal — as authentication of 
acts done. 

{e) To make contracts and be bound thereby. 

(/) To buy and sell property. 

{g) To sue and be sued. 

{h) To make and ordain by-laws for the govern- 
ment of corporate affairs. 

There are also, as stated above, divers and sundry 
other powers and rights which require more than gen- 
eral remark and will be treated of in separate chapters, 
especially the right and power to sell or otherwise dis- 
pose of the entire corporate property and assets; also 
the right and power to issue bonds and secure payment 
thereof by mortgage upon such property; also the right 
and power to combine, consolidate, merge or amal- 
gamate the corporation, its property and privileges, 
with other corporations, with or without the stock- 
holders' consent, and to dissolve and terminate the cor- 
porate existence, in the absence of such consent or 
otherwise. These, as has been said, have been the sub- 
ject of extensive litigation, and extracts from certain 
leading cases will be found below in later chapters. 

In one of the earlier cases, Judge Locke, of the 
North Carolina Supreme Court, thus enumerates the 
powers of corporations : 



68 Corporation Law as Applied . 

"ist. To have perpetual succession; and therefore 
all aggregate corporations have, necessarily, the power 
of electing members in the room of those v/ho die, to 
sue and be sued, and to do all other acts as natural 
persons. 

"2d. To purchase lands and hold them for the bene- 
fit of themselves and successors. 

"4th. To have a common seal. 

"5th. To make by-laws for the better government 
of the corporation. These corporations cannot com- 
mit crimes, although the members may in their indi- 
vidual capacity; the duties of these bodies consist in 
acting up to the design for which they were instituted." 

Trustees of University of North Carolina vs. Foy, etc, 
I Murphy's (N. C.) Reports, 58. 

Extent of powers. — The powers of a corporation 
are thus defined by Chief Justice Black, of the Penn- 
sylvania Supreme Court. That learned and distin- 
guished jurist said : 

"That which a company is authorized to do by its 
act of incorporation it may do ; beyond that its acts are 
illegal, and the power must be given in plain words or 
by necessary implication. All powers not given in this 
direct and unmistakable manner are withheld. * * *" 
Commonwealth vs. Erie & N. E. Railway Co., 27 
Penn. St., 351. 

Powers by implication. — It is also to be noted that 
there are certain powers and rights which, though net 



to Private Business Corporations 69 

specifically named, yet pass to the corporation, such as 
the power to make by-laws, to use a common seal, and 
the like, without which the corporation could not prop- 
erly exist and carry out its purposes ; these are the inci- 
dental powers included in the term ^'Implications," 
used by the learned chief justice : 

"* ^ ^ jf yQ^ assert that a corporation had cer- 
tain privileges, show us the word of the legislature 
conferring them ; failing in this, you must give up your 
claim, for nothing else can possibly avail you. A 
doubtful charter does not exist, because whatever is 
doubtful is decisively against the corporation. * * * 
All our predecessors on the bench occupied the same 
ground, the same is occupied by the Supreme Court of 
the United States and many of the States of the Union ; 
even in England the justice and necessity of it are uni- 
versally acknowledged and acted upon. * * * The 
lawyer who is not familiar with the numerous authori- 
ties upon it to be found in every book of reports will 
probably never become so; and the citizen who does 
not believe it to be a most salutary feature of our 
jurisprudence can hardly be convinced, though one 
rose from the dead. 

"* "^ * The defendant can take nothing from our 
hands by construction. We cannot widen the limit 
set to these principles, because they found them incon- 
veniently narrow." 
Commonwealth vs. Erie & N. E. Railway Co., supra. 

To the same effect was the opinion of Mr. Justice 
Mercur, of the same court, who said of the corpora- 
tion : 



70 Corporation Law as Applied 

"It can exercise no powers or authorities except such 
as are conferred or authorized by its charter, or those 
necessarily incident to the powers and authorities thus 
granted, and, in estimation of law, part of the same." 
Diligent Fire Ins. Co. vs. Commonwealth, 75 Penn. 
St., 291, 295. 

In Maine the rule was laid down regarding these 
(so-called) "Powers by Implication": 

"That although a corporation might do those things 
which were incidental to the powers expressly granted, 
they could not do things expressly prohibited by law." 
Plummer vs. Penobscot Lumbering Co. Ass'n, 67 
Maine, 363. 
In North Carolina Chief Justice Pearson held : 
"That general words in an act of incorporation do 
not authorize the company to do acts which by the 
public law are indictable ; plain and positive words are 
necessary to confer such a privilege." 

State vs. Krebs et al, 64 N. C, 604. 
In Texas, in -a celebrated case, 
Waterbury vs. City of Loredo, 60 Texas, 519, 
Mr. Commissioner of Appeals Watts, in delivering the 
opinion of the Court, quoted from 

Green's Brice's Ultra Vires, p. 28, 
and also from 

Judge Cooley's Constitutional Limitations : 
"Corporations have an implied power to make such 
contracts as are usual and necessary for carrying into 
effect the purposes for which they were created." 



to Private Business Corporations 71 

A case of great importance, and one of the highest 
authority, was 

People ex Rel, Attorney General vs. Utica Ins. Co., 
15th Johnson's Reports (N. Y.), 357. 

This is one of the most cited cases of New York 
State. Opinions were written by Thompson, Ch. J., 
and Ambrose Spencer, J. Martin van Buren was, 
at that time. Attorney General of New York State, 
and took an active part in the trial. The holding of 
the case was, that a corporation has no other powers 
than such as are specifically granted by the act of in- 
corporation, or are necessary for the purpose of car- 
rying into effect the powers thus expressly conferred. 

In the United States Supreme Court, in 
Green Bay vs. Union Steamboat Co., 107 U. S., 98, 

100, 
Mr. Justice Gray, who delivered the opinion of the 
Court, said: 

"The general doctrine upon this subject is now well 
settled. The charter of a corporation, read in con- 
nection with the general laws applicable to it, is the 
measure of the powers." 

And again : 

"We take the general doctrine to be, in this country, 
that although there may be exceptional cases and some 
authorities to the contrary, that the powers of corpora- 
tions organized under legislative statutes are such, and 
such only, as those statutes confer." 
See also, Thomas vs. Railroad Co., loi U. S., 71, 

82 (1879); 

opinion by Mr. Justice Miller. 



72 Corporation Law as Applied 

In the leading English case of 
East Anglian Ry. Co. vs. The Eastern Counties Ry. 
Co., II C. B. (old series), 775, 809, 

it was held that a railway company, incorporated by 
act of Parliament, could not, even with the assent of 
all its shareholders, legally enter into a contract involv- 
ing the application of any portion of its funds to pur- 
poses foreign to those for which it was incorporated: 
Vide opinion by Jervis, Ch. J., Maule, Williams and 
Talfourd, J. J. The learned chief justice, in support 
of his opinion, cited 

Salomon vs. Laing, 12 Beavan, 339, 352, 
and 

Bagslow vs. The Eastern Union Ry. Co., 2 McNaght 
&G., 389- 

The foregoing case had in it the element of being 
a "public" corporation, and in this connection it must 
be noted that in all public or gwa^f-public corpora- 
tions there are certain duties and obligations which 
they owe to the general public in addition to those 
which they owe to their parent State and their share- 
holders. 

In the very able and much cited work of Angel and 
Ames we find the following enumeration of corporate 
powers : 

"To enable it to answer the purposes of its creation, 
every aggregate corporation has, incidentally, at com- 
mon law, a right to take, hold and transmit in succes- 



to Private Business Corporations 73 

sion, property, real and personal, to an unlimited ex- 
tent or amount/' 

Angel and Ames on Corporations, sec. 145. 

To these common-law rights and powers there is to 
be added those incidental rights and powers^those 
passing by implication and hereinafter spoken of. It 
is also to be noted that the legislatures have in all 
our various States, to a greater or lesser degree, lim- 
ited these common law rights. 

Clark and Marshall say that one of these implied 
powers, or as they are sometimes termed, "incidental"' 
powers, is the right "to use a common seal," though 
it is now well settled that corporations may contract 
by resolution, or by its agents, without a seal. 

Clark and Marshall, sec. 12. Thomas vs. Dakin, su- 
pra, p. 

Limitations of powers. — In Thompson's Commen- 
taries it is thus stated : 

"Judicial decisions abound in general statements of 
doctrine to the effect that corporations possess only 
such powers as are expressly granted, or such as are 
necessary to carry into effect the powers expressly 
granted, and some add the proposition that these pow- 
ers can only be exercised for the purposes contemplated 
by their charters." 

Thompson's Commentaries on the Law of Corpora- 
tions, Vol. IV., sec. 5638. 



74 Corporation Law as Applied 

That able writer then cites among various cases 
herein noted the opinion of Chief Justice Marshall in 
Dartmouth College case, in connection with these 
words of comment: 

*Tt has been thought necessary to define a portion 
of this definition, and accordingly it has been said that 
an incidental power is one that is directly and imme- 
diately appropriate to the execution of the specific 
power granted, and not one that has a slight or remote 
relation to it." 

Citing Hood vs. N. Y., etc., R. R. Co., 22 Conn., 16 
and 502. 

Mr. Spelling, in his admirable work on corpora- 
tions, says, in regard to the powers of a corporation : 

"Being a mere creature of law, it possesses only 
those powers which are given to it by its charter, either 
expressly or by implication, as necessary and incident 
to a due performance of its duties, the exercise of its 
privileges and, furthermore, of the objects of its cre- 
ation. The enumeration of the powers in a charter 
confers those that are fairly implied ; but such enumer- 
ation of powers excludes all others than those that are 
included upon a fair and reasonable construction." 

Spelling on Corporations, sec. 61. 

It will be seen from the text-books and decisions 
that in no case does the ancient maxim — Expressio 
iinius est exclusio alterms, more aptly apply than in 
matter pertaining to the powers of corporations. 



to Private Business Corporations 75 

Kyd, on the subject of the 'Towers of Corpora- 
tions," says that : 

"A corporation may regulate in a reasonable manner 
the exercise of a right in its internal affairs, in the 
conduct of its members, or the mode by which a person 
is admitted to the exercise of a right, but it cannot 
take away a right." 

Kyd on Corporations, Vol. 11. , p. 107 (London Edi- 
tion, 1795). 

It is probable that the learned author did not have in 
his mind such an institution as the modern private 
business corporation ; yet the quotation is valuable and 
appropriate in that it declares the doctrine that it is 
not within the power of a corporation to deprive a 
stockholder of well-established vested rights. 

The North Carolina case. State vs. Krebs, supra 
(64 N. C, 604) strongly sustains the ancient and well- 
known rule contained in the Bill of Rights, viz. : 

"That no freeman ought to be taken, imprisoned, 
or disseized of his liberty, or privileges, or outlawed, 
or in any manner destroyed of his life, liberty or prop- 
erty, but by the law of the land," — holding in sub- 
stance that the "law of the land" means due legal 
process, and applying those principles to corporate 
affairs. 

Moreover, in regard to the powers of corporations, 
there is still another principle which pertains to ma- 
jority stockholders as well, namely : That notwith- 
standing however broad and extensive the powers may 
be which are conferred upon corporations, stockhold- 



76 Corporation Law as Applied . 

ers, their officers and agents, 'none of them can as- 
sume a power which impairs the obHgation of a con- 
tract, or that deprives a person of a vested right, with- 
out the consent of the parties interested. 

Nor can such corporation's stockholders, officers 
and agents exercise the powers conferred upon them 
for different purposes and objects than those for which 
they were granted; nor under cover or color of the 
powers which they undoubtedly possess, so exercise 
them as to constitute an utter and sweeping diversion 
from the original purpose, or as was said in the famous 
Dartmouth College case, supra, "totally change a 
system." These words were used by Chief Justice 
Marshall in his holding: "That the legislature could 
not totally change a system which has anteriorly been 
agreed upon by the corporators." This case will be 
quoted hereafter (Chapter XXIII. ; see also Chapter 
XXIV. for Constitutional delimitation). 

A body corporate can only act in the mode prescribed 
by the law of its creation. 

Beatty vs. Marine Ins. Co., 2d Johns (N. Y.), 109. 

In the celebrated and much quoted English case in 
the House of Lords, 
Atty. Gen. vs. Great Eastern Ry., Reported in Vol. 

v., App. Cases, 473, 478, 
opinion by the Lord Chancellor, Lord Selborne, it was 
held in substance that the doctrine of Ultra Vires was 
to be maintained, but was to be applied reasonably; 
so that whatever is fairly incidental to those things 
which have been authorized by an act of Parliament 



to Private Business Corporations 77 

ought not (unless expressly prohibited) to be held as 
ultra vires. 

In the same case Lord Blackburn said : 

"That where there is an act of Parliament creating 
a corporation for a particular purpose^ and giving it 
powers for that particular purpose, what it does not 
expressly or impliably authorize is to be taken to be 
prohibited." 



"I quite agree with what Lord Justice James has 
said on this point, namely, as to prohibition : 

" 'That those things which are incident to, and may 
reasonably and properly be done under the main pur- 
pose, though they be not literally within it, would not 
be prohibited.' " 

Ibid, p. 481. 

''A corporation is a creature of the law and derives 
all its powers from the act of incorporation. It is ex- 
actly what the act has made it, and is incapable of 
exerting any other faculties than those conferred by 
the act, or in any other manner than it authorizes. * * * 
Every act must be construed in such a manner, if pos- 
sible, as not to exceed the sovereignty of the legislature 
granting it; it ought not, therefore, to be deemed to 
authorize any act to exceed the jurisdictorial power 
of the State, or interfere with the rights of other 
States." 



78 Corporation Law as Applied 

Opinion by Mr. Justice Bartol, in 

Mayor, etc., vs. Baltimore, etc., etc., 21 Maryland 

Rep., 50, 89, etc. (1863). 

In 

Barry vs. Merchants' Ex. Co. and King., i Sandfords 

Chancery Rep. (N. Y.), 280 (1844). 

the Assistant Vice-Chancellor set forth certain princi- 
ples which have been the groundwork for many of the 
things subsequently laid down herein : 

"Every corporation, as such, has the capacity to take 
and grant property, and to contract obligations in the 
same manner as an individual. This is the general 
rule; but corporations are usually created for some 
limited and specific purpose, and therefore the general 
powers incident to a body corporate at common law 
are restricted by the nature and object of the institu- 
tion of each. And every such corporation has power 
to make all contracts which are necessary and usual 
in the course of the business it transacts, as means to 
enable it to effect such object, unless expressly pro- 
hibited by law, or the provisions of its charter. Upon 
this principle, and to the extent stated, a corporation 
in order to attain its legitimate objects may deal pre- 
cisely as an individual who seeks to accomplish the 
same ends." 

The above-quoted decision was by the very able and 
learned Lewis H. Sandford. 

Corporations are bound to follow strictly the letter 
of their charter, and can exercise no power unless 



to Private Business Corporations 79 

granted to them, or absolutely necessary to the power 
so granted. 

Smith vs. Morse, 2 Cal., 524. 
Power must be exercised in the manner pointed out 
by statute, etc. 

Smith vs. Eureka Flour Mills Co., 6 Cal., i. 
Powers are only those specifically granted. 
Neall vs. Hill, 16 Cal., 145. xA.rgents vs. City of San 
Francisco, 16 Cal., 255. 
The power of two States to concurrently create a 
single corporation is asserted in. 

Bishop vs. Brainerd, 28 Conn., 299; 
see also in this regard 

Lane vs. Brainerd, 30 Conn., 565, 
and 

Piatt vs. New York & Boston R. R. Co., 26 Conn., 567. 
The ancient maxim, ^^Sic ufere tuo/' etc., is fully 
sustained in 

Holmes, Booth & Hayden vs. Holmes, B. & A. Mfg. 
Co., 37 Conn., 293. 

The above case was both leading and important, and 
the opinion of Mr. Justice Carpenter is well worthy 
of perusal. Among other things he said : 

"Perpetuity is a prominent feature of corporations ; 
ordinarily they are organized not for a lifetime merely, 
but for generations and perhaps centuries." 

The same maxim is approved and held applicable to 
corporations, in 
Hooker vs. N. H. & N. Co., stipra (15 Conn., 317). 



80 Corporation Law as Applied 

That corporations are to be treated like natural per- 
sons, so far as practicable, is laid down in 
Smyrna, etc., S. S. Co. vs. Whilldin, 4 Herrington 
(Del.), 230. 

In this case Chief Justice Booth, in his charge to 
the jury, said, inter alia: 

"Corporations are collections of individuals entitled 
to the same protection to property in their aggregate 
or corporate capacity as they would have in their in- 
dividual capacity." 

In Florida it has been established that — 

"All powers of a corporation must be derived from 
some action of the legislative department of the gov- 
ernment." 

See, State of Florida vs. Florida C. R. R. Co., 15 
Fla., 690. 

In Idaho, by a comparatively recent decision ( 1900) , 
it was wisely held that the doctrine of Ultra Vires 
should not be applied when it would defeat the ends 
of justice, or work a legal wrong. 
Burke Land Co. vs. Wells, Fargo & Co., 7 Idaho, 42. 

It is submitted that nowhere in the books is the true 
use of the Ultra Vires rule more forcibly expressed 
than in the foregoing utterance from one among the 
youngest of the States. 

"A power which the law implies to corporations 
must be one which is necessary, suitable and proper 
to accomplish the object of the grant of express pow- 
ers of a corporation, and one which is directly and 



to Private Business Corporations 81 

immediately appropriate to the execution of the specific 
powers, and not one which has but an indirect or re- 
mote relation to the specific purpose of the corpora- 
tion." 

Ibid. 
People ex rel Moloney, Atty. Gen. vs. Pullman Palace 

Car Co., 175 111., 125. 
People ex rel Peabody vs. Chicago Gas Trust Co., 130 
111., 268. 

In the above, Magruder, J., in his very able opinion 
(p. 284), quotes from ''Boone on the Law of Corpora- 
tions," as follows : 

"Without a power specifically granted or necessarily 
implied, a corporation cannot become a stockholder 
in another corporation, and especially where the object 
is to obtain the control or affect the management of 
the latter. 

"A corporation cannot lawfully divide its capital 
stock among its members, nor encroach upon capital 
so as to accelerate its own dissolution. But subject to 
these qualifications, every corporation has the free 
management of its property, save in so far as its free- 
dom is controlled (i) by usage sufficient to impart 
implied condition in its charter, (2) by contract, ex- 
press or implied, between the corporation and its mem- 
bers." 

Kesson vs. Aberdeen, Wrights & Cooper's Incorpora- 
tion, 36 Scottish Law Reporter, 38 : 

Opinion by Lord K3dlachy, Ordinary. 

The above case was concerning a Scottish trading 
corporation. It sustains the general proposition that 



82 Corporation Law as Applied 

no corporation can lawfully do anything contrary to 
its constitution as expressed in its charter. 

"A corporation has no powers except such as are 
specifically granted or such as are incidentally neces- 
sary for the purpose of carrying into effect the express 
powers/* 

Wechler vs. First Nat. Bank, 42 Md., 581. 

"The creation of the corporation was authorized by 
law, and upon its formation it became an artificial 
being, distinct from its corporators." 

Sayers vs. Texas Land Co., 78 Texas, 247. 

Corporations are not necessarily legally identical, 
because organized by the same persons and operated 
in the same interests. 

White vs. Pecos Sand, etc., Co., 18 Texas Civ. App., 

638. 

The doctrine that a corporation once created by the 
State an ''artificial person " is thereafter to be treated 
as a natural person (so far as practicable), asserted: 
Richmond F. & P. R. R. Co. vs. City of Richmond, 
26 Grattan (Va.) 83, and ibid, p. 95. 

Certain of the general powers of a corporation are 
thus defined in Virginia, in 

Rivanna Navigation Co. vs. Dawsons, 3 Grattan, 19: 
Opinion by Mr. Justice Baldwin: 

"* * * the general incidental powers of a corpo- 
ration, whether derived from the common law or by 
statute, may be curtailed by the provisions of its legis- 
lative charter, either expressly or by necessary impli- 



to Private Business Corporations 83 

cation. * 'J^ ^ Corporations aggregate are artificial 
beings created for specific and limited objects, public 
or private, in order to conduct and continue in succes- 
sion the interests pertaining to these objects, by the 
exercise collectively of appropriate legitimate means, 
such as natural persons may employ individually. The 
difference between the forms of corporations and indi- 
viduals is to be found mainly in the limited objects of 
the former, and the necessity of their acting in a con- 
crete character. It is essential to corporations, as well 
as individuals, that they should have the capacity to 
sue and be sued, to make contracts, to acquire and 
alienate property. Without these powers the purposes 
of their institutions could not be accomplished. But 
they have not, like individuals, an unlimited discretion 
in the application of those powers. * * *" 

In regard to the changing of capital stock, it was 
held: 

"That corporations have not implied power to effect 
such change^that it can be effected only by legisla- 
tive sanction — seems to be settled.'' 

Granger, etc., vs. Kamper, 73 Ala., 343, 

Citing, Green's Brice's Ultra Vires, sec. 112, etc. 

The headnote of Sec. no, subdiv. 3, says: 

"Joint stock corporations cannot have, apart from 
statutes, a power to vary the amount of their capital." 

In 

Susquehanna Boom Co. vs. Dubois, 58 Penn. State, 

185, 



84 Corporation haw as Applied 

Agnew, J., in delivering the opinion of the court, said : 

'The rule that a power not clearly conferred must 
be deemed to be withheld is an admitted canon in the 
interpretation of private charters of incorporation." 

The doctrine hereinbefore laid down regarding the 
inherent powers of legislature applies a fortiori to 
their creation, to wit: Corporations; and it has been 
held in the U. S. Supreme Court that Ultra Vires acts 
are void, because of the legal incapacity of the corpora- 
tion to originate or perform them. 

See 

Chicago, R. L, etc., Ry. Co. vs. Union Pacific Ry. Co., 
47 Fed. R., 15; 

opinion by Mr. Justice Brewer. 

In connection with the general theme, and in further- 
ance thereof, it is necessary, and it is hoped, useful, to 
digress for a short time, while the application of these 
powers to the disposal of the corporate property, is 
seen and discussed in the next chapter. 



to Private Business Corporations 85 



CHAPTER V. 

The Power to Alienate the Corporate Property 
and Rights. 

Extent of power. — Right to exercise power. — Limita- 
tions of power. — Allied subjects. — Consensus of 
opinion. 

Extent of power. — While the powers of corpora- 
tions necessarily include the right to buy and sell, there 
has been serious discussion over the power of the cor- 
poration, its stockholders or officers to sell, alienate or 
otherwise dispose of its entire property, assets and 
effects, including its franchise. The limits of this 
book preclude a lengthy dissertation on this subject; 
an epitome even of all that has been written thereon 
cannot be given. There are, however, certain general 
rules governing the situation. These, taken together, 
constitute the key-note to all that which has been au- 
thoritatively said on the subject. From a statement of 
these the reader can deduce what the law is, for the 
principle of stare decisis is of far-reaching power 
and influence in all matters legal. Like amber, it con- 
serves by permanent but transparent means the expe- 
rience of other times. 

Right to exercise power. — In Connecticut, Andrews, 
C. J., in delivering an unanimous opinion, said : 



86 Corporation Law as Applied 

"It is competent for any business corporation, and 
especially one financially embarrassed, to sell its prop- 
erty, divide its assets or wind up its affairs." 
Bartholomew vs. Derby Rubber Co., 69 Gonn., 521. 

The same opinion continues : 

'We have considered this case on the assumption 
that the action of the directors and the majority stock- 
holders was done in good faith and in the honest be- 
lief that they served the best interests of all concerned. 
If fraud had been charged, a very different case would 
have been presented. >i< * * Fraud is never to be 
presumed. While fraud may in some cases be inferred 
from facts, it is never to be inferred unless it is 
charged; and then only when the facts and circum- 
stances clearly indicate that fraud has been commit- 
ted." 

Limitations of power For a case of moment, 

wherein the whole subject was ably discussed, see 

Forester vs. Boston and Montana, etc., Co., 21 Mon- 
tana, 544 (1898) ; 

opinion by Mr. Justice Pigot. 

That litigation involved an appeal from an order 
granting an injunction restraining the defendant from 
voting, etc., any stocks in favor of disposing of the 
property of the said corporation, which was domiciled 
in Montana, to a corporation of the same name incor- 
porated under the laws of New York. 

Among other things, the court says : 



to Private Business Corporations 87 

"The defendants claim that the power so to trans- 
fer exists, while plaintiffs assert that the action in- 
tended to be taken is 'ultra vires the corporation, 
employing that term in its strict sense as designating 
acts which are beyond the powers of a majority, or 
of any number less than all of the stockholders as 
against the minority. 

"At common law neither the directors nor a major- 
ity of the stockholders have power to sell or otherwise 
transfer all the property of a going, prosperous cor- 
poration, able to achieve the object of its creation, as 
against the dissent of a single stockholder. This doc- 
trine is firmly established by authority of adjudged 
cases." 

Citing, Abbott vs. Am. Hard Rubber Co., 33 Barb. 
(N. Y.), 578. People vs. Ballard, supra, 

and 

Cook on Stock and Stockholders, sec. 667, etc. 

The learned justice continues : 

"Our attention is called to certain decisions which 
are said to recognize a contrary doctrine; but exam- 
ination discloses no conflict of opinion among the vari- 
ous courts of last resort. 

Treadwell vs. Salisbury Mfg. Co., 7 Grey (Mass.), 

393- 

is typical of cases relied upon by the defendants; a 
short extract from the opinion (p. 405) will serve to 
illustrate the error into which counsel have fallen : 



88 Corporation Law as Applied 

*' *Upon the facts found in the case before us, we 
see no reason to doubt that the vote of the majority 
of the stockholders for the sale of the corporate prop- 
erty and the closing of the business of the corporation 
was justified by conditions of its affairs. Without avail- 
able capital, and without the means of procuring it, the 
further prosecution of their business would be un- 
profitable, if not impracticable; under these circum- 
stances it was in furtherance of the purposes of the 
corporation to pay their debts, close their affairs and 
settle with the stockholders on terms most advantage- 
ous to them.' 

''In that case, as in every one cited by the defend- 
ants, the corporation was unable to further prosecute 
the purposes for which it was created. >i= * * 

''It must be admitted that the sale of the assets and 
the distribution of the proceeds is vitally different 
from the enforced change of those assets for the cap- 
ital stock of a foreign corporation. ^J^ ^- ^ 

"In exercising the power of sale, which the defend- 
ants claim is conferred by the statutes, it would be 
necessary for those in control of the corporation to 
act with a due regard for the interests of all the stock- 
holders, and to pursue such a course as would insure 
the accomplishment of the best result attainable ; and 
if those holding a majority of the stock should not 
only determine that the entire assets of the company 
should be sold, but should adopt and direct such method 
of procedure as would prevent competition or in any 
other way involve sacrifice of the corporate assets or 



to Private Business Corporations 89 

endanger the interests of any of the stockholders, such 
proceeding should be checked and controlled by the 
courts, as both the management and the winding ap 
of the corporation may properly be regarded as the 
performance of a trust, with which the property is 
charged for the benefit of all who are entitled to share 
in division of the profits, or in the distribution of the 
assets." 

In 
Williamette vs. Bank of British Columbia, 119 U. S., 
191 (1886), 

Mr. Justice Miller said : 

''There seems to be here no limitation upon the 
power of the corporation to dispose of whatever it 
acquired under the statute which called it into being. 

""^ * * It would be unprofitable to go into an inquiry 
of how far the corporation could have transferred these 
exclusive rights and privileges to anybody else, and 
how far it could have divested itself of them and its 
power to use them, if no such language had been in 
the charter. But the supreme legislative power whicii 
had the right to make this corporation, and to which it 
would be subject, more or less, in its exercise of pow- 
ers conferred upon it, has also said, as it had a right 
to say, that it may sell these privileges, may part with 
them and may transfer them to other persons. * "^ '^" 

In 

Clark and Marshall 
the subject is thus treated : 



90 Corporation Law as Applied 

"A purely private business corporation may cer- 
tainly sell and convey absolutely the whole of its prop- 
erty when the exigencies of business require it to do 
so, or when it can no longer profitably continue its 
business, and this may be done according to the weight 
of the authorities by the majority against the protest 
of a dissentient minority." 

Clark and Marshall on Private Corporations, Vol. I., 
p. 436, sec. 160. 

And this principle, as laid down by Messrs. Clark 
and Marshall, is sustained by numerous authorities. 
In substance, the dissenting stockholder may prevent 
a sale of all the corporate property, by the directors 
or majority stockholders, where. the corporation is a 
solvent, going concern, and where a dissolution is in 
view. 

Cook on Corporations, sec. 689. 
But where the by-laws permit such entire sale it may 
be done by a majority vote. 

Ibid, sec. 670. 

This doctrine does not preclude a sale where the 
business was not prosperous, or was not a so-called 
"going" concern; for where business exigencies re- 
quire it the whole property, franchise and all, may be 
sold, even against the dissent of stockholders, one or 
more. 
Sewell vs. East Cape May Beach Co., 50 N. J. Eq., 

717. 
People vs. Ballard, 134 N. Y., 269, a leading case on 
the subject. 



to Private Business Corporations 91 

It is held in the last mentioned decision that a 
corporation cannot sell its property to a foreign cor- 
poration, organized through its procurement with a 
majority of non-resident trustees for the purpose of 
taking its place and its assets and carrying on its busi- 
ness, as this is a practical dissolution of the corpora- 
tion. 

Citing, as a leading authority : 
Abbott vs. Am. Hard Rubber Co., 33 Barb. (N. Y.), 

578. 

Allied subjects. — This subject of the power of the 
corporation to alienate property is connected closely 
and inseparably with the powers of the stockholders, 
of the directors and of the charter or its equivalent, 
the modern certificate of incorporation under general 
laws, and has elsewhere received attention : Vide 
Chapters IV., VIII,, IX., and the text generally. 

Consensus of opinion — The consensus of authority 
is that whatever may be the common law power vested 
in a corporation to sell all the property and assets 
belonging to it, neither the corporation, its directors 
nor the majority stockholders have the right against 
the will of any stockholder to sell, dispose of absolutely 
or transfer away the entire assets and property of a 
prosperous, "going" business corporation. 



92 Corporation Law as Applied 



CHAPTER VI. 
Bonds and Mortgages. 

Use and convenience of such securities. — Underlying 
idea. — Limitation of rule, when applied to quasi- 
public corporations. — General principle asserted in 
a leading case. — Other controlling authorities. 

Use and convenience of such securities. — In addition 
to the means of procuring capital, which the stock 
affords, there is the opportunity which comes through 
the medium of bonds secured by mortgage upon the 
corporate assets. As an incident of the latter method 
of securing additional property or funds, it may be 
mentioned that in this way there is opened to numer- 
ous small investors a convenient channel for obtaining 
a reasonable return for the use of their capital or sav- 
ings, with a smaller degree of risk than is usually 
attendant upon commercial and business ventures. As 
has been seen, in the presence of honesty and good 
faith, the tendency of the courts has always been to 
validate and sustain these instruments, for public pol- 
icy and the prosperity of the commonwealth demand it. 

The question of the power to issue bonds for money 
and secure the same by mortgage is an extensive one. 

In most, if not all, the States special laws have, been 
enacted regulating the creation of mortgages and of 



to Private Business Corporations 93 

corporate bonds. It is not within the scope of this 
work to go into details concerning these rules and reg- 
ulations as they govern the matter in the various 
States, or to do more herein than to state the general 
rules and principles applicable thereto, as laid down 
by eminent jurists. 

In the absence of legislative restriction, as will here- 
after be seen, the private business corporation has the 
right to mortgage as well as to sell corporate property. 

Underlying idea. — The great basic principles which 
underly all corporate action are : ( i ) That it exists, 
and alone exists, for the purposes for which the sov- 
ereign people uttered the creative fiat. (2) That what- 
ever is necessary and proper for the purposes and ob- 
jects of the corporation may be done, providing it is 
intra vires, and is done in good faith. 

The common-law right of corporations to contract 
debts implies the right to issue evidence of indebted- 
ness and to secure the same by mortgage upon the cor- 
porate property. And a fair construction of an act 
authorizing corporations formed thereunder to borrow 
money for the purpose of constructing their works, and 
to issue bonds in payment, permits a corporation to 
purchase works already constructed to its hand. 

This right to mortgage is subject only to the con- 
dition that the contract is one the performance of 
which, from the nature and objects of incorporation, 
the corporate body is expressly or impliedly authorized 
and empowered to make. If the indebtedness con- 



94 Corporation Law as Applied 

tracted and the mortgage given to secure the same 
be in excess of the powers of the corporation, that is, 
not necessary to the accomplishment of the objects for 
which it is formed, it is ultra vires; but even in that 
case the corporation would generally be estopped from 
setting up the invalidity of the mortgage, to defeat 
the rights under it of a bona fide holder for value. 

Limitation of rule, when applied to quasi-public cor- 
porations. — Such is the well-established rule with 
respect to all ordinary private corporations, organized 
and conducted for profit. In the case of those corpora- 
tions whose business largely concern public interests, 
a somewhat different rule prevails. It only extends, 
however, to those properties, the alienation of which 
would disable them from performing duties which 
they owe to the public. 

They have the same right to dispose of and encum- 
ber property not essential to the exercise of public 
functions as have other private corporations. For 
instance, lands of a railroad company not acquired in 
the exercise of the right of eminent domain or so con- 
nected with the franchise to operate and manage a 
railroad, that the alienation would tend to disable the 
corporation from performing the public duties imposed 
upon it, and in consideration of which its charter priv- 
ileges have been conferred, may be conveyed or mort- 
gaged with like effect, as if owned and conveyed by 
any other private corporation under the general com- 
mon-law right independently of special statutory au- 
thority. 



I to Private Business Corporations 95 

If a corporation Include in the same mortgages 
property which it may legally mortgage and other 
property which it cannot so encumber, the mortgage, 
in accordance with a familiar principle, will be held 
valid with respect to the first and voidable as to the 
second, provided the good and bad parts be capable 
of separation. 

General principle asserted in a leading case. — In 

Jones vs. Guaranty and Indemnity Co., loi U. S., 622, 
625-628, 

Mr. Justice Swayne, in delivering the opinion of the 
court, said: 

"At the common law every corporation had, as inci- 
dent to its existence, the power to acquire, hold and 
convey real estate, except so far as it was restrained 
by its charter or by act of Parliament. This compre- 
hensive capacity included also personal effects of every 
kind. 

"The jus disponendi was without limit or qualifica- 
tion. It extended to mortgages given to secure the 
payment of debts." 

(Citing, I Kyd on Corporations, sees. 69, y6, 78, 108 
(London, 1893. Angel and Ames on Corpora- 
tions, sec. 145 (Boston, 1875). 2 Kents Com- 
mentaries, p. 325 (Boston, 1858). Reynolds vs. 
Commissioners of Stork County, 5 Ohio, 204. 
White Water Valley Canal Co. vs. Vallette, 21 
How. (U. S.), 414). 



96 Corporation Law as Applied 

"It is believed they are held valid throughout the 
United States, except where forbidden by the local law. 

"The statute under which the Oil Company came 
into existence made it 'capable in law of purchasing, 
holding and conveying any real and personal estate, 
whenever necessary to enable' it to carry on its busi- 
ness; but it was forbidden to 'mortgage the same or 
give any lien thereon/ This disability was removed 
by the latter act of 1864, which expressly conferred 
the power before withheld. This change was remedial 
and the clause which gave it to us is, therefore, to be 
construed liberally with reference to the ends in view. 

"The learned counsel for the appellant insisted that 
a mortgage could be completely given by the Oil Com- 
pany only to secure a debt incurred in its business 
and already subsisting. This, we think, is too narrow 
a construction of the language of the law. A thing 
may be within a statute, but not within its letter, or 
within the letter and yet not within the statute. The 
intent of the lawmaker is the law." 

(Citing, People ex rel. Atty. Genl. vs. Utica Ins. Co., 
15 Johns (N. Y.), 357, 

and other cases). 

"The view of the court in 
Thompson vs. New York & Hudson River R. R. Co., 
3 Sandf. (N. Y.), Ch., 625, 

was sounder and better law. There the charter author- 
ized the corporation to build a bridge. It found one 
already built that answered every purpose and bought 



to Private Business Corporations 97 

it. The purchase was held to be intra vires and valid. 
Here the object of the authorization is to enable the 
company to procure the means to carry on its business. 
Why should it be required to go into debt and then 
borrow, if it could — instead of borrowing in advance, 
and shaping its affairs accordingly? No sensible rea- 
son to the contrary can be given. If it may borrow 
and give a mortgage for a debt antecedently or con- 
temporaneously created, why may it not thus provide 
for future advances as it may need them? This may 
be more economical and more beneficial than any other 
arrangement involving the security authorized to be 
given. In both these latter cases the ultimate result 
with respect to the security would be just the same as 
if the mortgage were given for a pre-existing debt 
in literal compliance with the statute. No one could 
be wronged or injured, while the corporation, whom 
it was the purpose of the law to aid, might be materi- 
ally benefited. Is not such a departure within the 
meaning, if not the letter, of the statute ? There would 
be no more danger of abuse of the power conferred 
than if it were exercised in the manner insisted upon. 
The safeguard provided in the required assent -of 
stockholders would apply with the same efficiency in 
all the cases. The object of the loan, the application 
of the money, and the restraints imposed by the char- 
ter in these particulars would be the same whether the 
transaction took one form or the other. According 
to our construction the company could give no mort- 
gage but one growing out of the business, and intended 



98 Corporation Law as Applied , 

to aid them in carrying it on. In legal effect the dif- 
ference between the two constructions is one merely 
of mode and manner, and not of substance. 

"Such securities are not contrary to the law or pub- 
lic policy of the State. Many cases are found in the 
reported adjudications where both judgments and 
mortgages have been sustained. 

"Our view is not without support from the lan- 
guage of the statute, that every mortgage so made 
shall be as valid to all intents and purposes as if exe- 
cuted by an individual owning such real estate." If 
this mortgage had been given by individuals the ques- 
tion we are examining doubtless would not have been 
brought before us for consideration. 

"When a deed is fatally defective for the want of a 
sufficient consideration to support it, such a considera- 
tion subsequently arising may cure the defect and give 
the instrument validity. 

(Citing, Sumner vs. Hicks, 2 Black (U. S.), 532.) 

"It is not necessary to go through the form of exe- 
cuting a second deed to take the place of the first one. 

"This principle applies to the mortgage after all the 
advances had been made, conceding that it had before 
been invalid for the reason insisted upon. 

"The statute of 1864 neither expressly forbids nor 
declares void mortgages for future advances. 

"If the one here in question be ultra vires, no one 
can take advantage of the defect of power involved but 



to Private Business Corporations 99 

the State. As to all other parties, it must be held 
valid, and may be enforced accordingly. 
(Citing, Silver Lake Bank vs. North, 4 Johns. (N. Y.), 
Ch., 370 ; National Bank vs. Matthews, 98 U. S., 
621.) 

"In the latter case this subject was fully examined. 
A corporation can act only by its agents. If there 
were any such technical defect as it is claimed touch- 
ing the execution of this mortgage, it has been cured 
by acquiescence and ratification by the mortgagor. 

"No one else can raise the question. All other par- 
ties are concluded. 

(Citing, Gordon vs. Preston, i Watts (Pa.), 385.) 

"Where money had been obtained by a corporation 
upon its securities which were irregular and ultra 
vires, but the money was applied for the benefit of the 
company, with the knowledge and acquiescence of 
stockholders, the company and shareholders were 
estopped from denying the liability of the company to 
repay it. And the same result follows where such 
securities are issued with the knowledge of the share- 
holders, so far as the money thus raised is applied 
for the benefit of the company." 
In re Cook vs. Youghal Ry. Co., L.R., 4 Ch. App., 748. 

Other controlling authorities. — The old rule, that 
"a corporation has the inherent power to issue bonds 
for the payment of money," is laid down in 
Cook on Corporations, sec. 762, 
supported by numerous cases. 
L OF C 



98 Corporation Law as Applied 

to aid them in carrying it on. In legal effect the dif- 
ference between the two constructions is one merely 
of mode and manner, and not of substance. 

"Such securities are not contrary to the law or pub- 
lic policy of the State. Many cases are found in the 
reported adjudications where both judgments and 
mortgages have been sustained. 

"Our view is not without support from the lan- 
guage of the statute, that every mortgage so made 
shall be as valid to all intents and purposes as if exe- 
cuted by an individual owning such real estate." If 
this mortgage had been given by individuals the ques- 
tion we are examining doubtless would not have been 
brought before us for consideration. 

"When a deed is fatally defective for the want of a 
sufficient consideration to support it, such a considera- 
tion subsequently arising may cure the defect and give 
the instrument validity. 

(Citing, Sumner vs. Hicks, 2 Black (U. S.), 532.) 

"It is not necessary to go through the form of exe- 
cuting a second deed to take the place of the first one. 

"This principle applies to the mortgage after all the 
advances had been made, conceding that it had before 
been invalid for the reason insisted upon. 

"The statute of 1864 neither expressly forbids nor 
declares void mortgages for future advances. 

"If the one here in question be ultra vires ^ no one 
can take advantage of the defect of power involved but 



to Private Business Corporations 99 

the State. As to all other parties, it must be held 
valid, and may be enforced accordingly. 
(Citing, Silver Lake Bank vs. North, 4 Johns. (N. Y.), 
Ch., 370; National Bank vs. Matthews, 98 U. S., 
621.) 

"In the latter case this subject was fully examined. 
A corporation can act only by its agents. If there 
were any such technical defect as it is claimed touch- 
ing the execution of this mortgage, it has been cured 
by acquiescence and ratification by the mortgagor. 

"No one else can raise the question. All other par- 
ties are concluded. 

(Citing, Gordon vs. Preston, i Watts (Pa.), 385.) 

"Where money had been obtained by a corporation 
upon its securities which were irregular and ultra 
vires, but the money was applied for the benefit of the 
company, with the knowledge and acquiescence of 
stockholders, the company and shareholders were 
estopped from denying the liability of the company to 
repay it. And the same result follows where such 
securities are issued with the knowledge of the share- 
holders, so far as the money thus raised is applied 
for the benefit of the company." 
In re Cook vs. Youghal Ry. Co., L.R,, 4 Ch. App., 748. 

Other controlling authorities. — The old rule, that 
"a corporation has the inherent power to issue bonds 
for the payment of money," is laid down in 
Cook on Corporations, sec. y62, 
supported by numerous cases. 
L r ^'X 



100 Corporation Law as Applied 

It must have appeared from what has gone before, 
and, indeed, from the very nature of things, that with- 
out such power every business corporation might at 
times be seriously hampered in the accompHshment 
of its legitimate purpose, or be altogether destroyed. 

It is stated in the same work — Cook on Corpora- 
tions, sec. 778 — that the earlier corporations were 
carried on by the capital furnished by the stockholders, 
but those of later date by that furnished by mortgage- 
bondholders. 

As a general rule, bonds issued by a corporation 
for the purpose of procuring loans and made payable 
to bearer are negotiable; but when such instruments 
contain special stipulations, and their payment is sub- 
ject to contingencies not within the control of the 
holders, they are deprived thereby of the character of 
negotiable instruments, and are subject, in the hands 
of a transferee, to any defense existing thereto that 
would be available if they were still held by the orig- 
inal payee. 

McClelland vs. N. S. R. R. Co., no N. Y., 469. 

See 

Spelling on Corporations, sec. 63, 

sub capite, "Incidental Powers," as set forth in the 
words following: 

*'A11 such incidental powers are applied as are nec- 
essary to carry out and exercise those expressly 
granted. The charter of a corporation need not be 
consulted for authority to sell and mortgage its prop- 



to Private Business Corporations 101 

erty. It may exercise its common-lav/ right in these 
matters Hke an individual. 

"Unless restrained by their charters they have im- 
plied power to mortgage their property to secure re- 
payment of borrowed money or other debts, to secure 
further advances, to become parties to negotiable paper 
in the transaction of their legitimate business, to deal 
precisely as individuals seeking to accomplish the same 
end, to make all contracts that are necessary and usual 
in the cases of the business transacted or as a means 
of the accomplishment of legitimate objects." 

The citations sustaining the above are numerous. 



102 Corporation Law as Applied 



CHAPTER VII. 

The Duties, Obligations and Liabilities of 
Corporations. 

Differing types of corporations imply different duties, 
etc. — Beginning and scope of these incidents to 
corporate existence. — Enumeration. — ^Principles 
applied. 

Differing types of corporations imply different 
duties, etc. — There is a marked distinction between a 
purely business corporation and one of a public or 
quasi-public nature, and this difference will be found 
often noted in the books. 

Its propriety becomes obvious when it is remem- 
bered that in the affairs of such corporations as are 
of a public character, or partially so, the people have 
granted various special privileges of intrinsic value, 
such as ''eminent domain," and the like, and it is most 
appropriate that the corporation should owe to the 
people — its grantors — duties, obligations and liabili- 
ties commensurate therewith. In the case of purely 
private corporations, however, practically no public 
or private rights are given away or invaded, the gist 
of the grant being "succession" and ''the right of 
several persons to act as one." Such gifts belong to 
the class where "withholding does not enrich, nor giv- 



to Private Business Corporations 103 

ing impoverish"; consequently, following the natural 
corollary of the just and equitable principle, "to whom 
much is given, much will be required," the private 
business corporation is called upon to do but little in 
return. 

The distinction is very clearly outlined by Chief 
Justice Church, as follows : 

"The creation of a corporation to construct and 
operate a railroad is the exercise of sovereign power 
and includes the grant of important franchise; such 
corporations have power to exercise the right of emi- 
nent domain and various rights and privileges not 
possessed by natural persons, in return for which they 
are placed under obligations to perform certain duties 
to the public." 
Abbott vs. Johnstown, etc., R. R. Co., 80 N. Y., 27-29. 

Beginning and scope of these incidents to corporate 
existence.— A corporation does not exist until the ac- 
ceptance of its charter. Constructively, the perform- 
ance of the requisites of a general incorporation law 
amounts to such acceptance, and endows the associa- 
tion with a de facto charter. 

A body corporate takes upon itself the duties and 
obligations pertaining to the situation; but, as has 
been seen, those of the private business corpDration, 
to which alone attention is here given, are compara- 
tively simple and few. 

The liabilities are such as generally pertain to a 
natural person, since by the act of forming such cor- 



104 Corporation Law as Applied 

porate body, the incorporators undertake that the fic- 
titious body will perform all the duties incumbent upon 
a natural person under like circumstances. 

In addition to this there is an obligation, expressed 
or implied, resting upon such corporate body to act 
infra vires, viz., strictly within its chartered rights. 

Of the liabilities so incurred, the various rules and 
principles which are laid down regarding the internal 
affairs of the corporation will be fully treated of here- 
after; the liabilities of the corporation in its attitude 
toward and its dealings with the State and with other 
artificial or real persons, are alone spoken of here. 

Enumeration. — An enumeration of the liabilities, as 
discussed in the books, is as follows : 

First, — The liability of the corporation for the acts 
of its representatives, officers and agents. This comes 
under the head of "Directors, Officers and Agents," 
Chap. XIV., and is there treated, as well as in numer- 
ous places throughout the general text. 

Second. — The liability for crimes and tortious acts. 
This obligation flows from the well-recognized prin- 
ciple that there is no immunity from crime, nor is 
there ever given authority to perform acts tortious 
per se, nor can there be. 

If there is power to commit crime or do things 
malum per se, there must, of course, be liability there- 
for. The true doctrine, which is fully sustained by 
competent authority, is that a corporation, being a 
created person, though ''artificial," is as liable as a 



to Private Business Corporations 105 

"natural" person, and the reason is obvious. Having 
received the benefits and advantages of being created 
an artificial person, the corporation is to be governed 
by the same rules and amenable to the same laws as 
a natural person, so far as its artificiality permits. 

Principles applied. — A leading case, sustaining the 
proposition that the corporation is thus liable, and in 
derogation of the ancient and now exploded doctrine, 
that the corporation, by reason of its restricted powers, 
"can do no wrong," has the following : 

"Corporations are the creatures of the legislature, 
created for public and useful objects, and are often 
the only means of effecting those objects. Their 
charter and extent, their powers and immunities, as 
well as their duties and obligations, are just as the 
legislature pleases to make them ; but when made, like 
natural persons, they are capable of making contracts, 
even with the power that creates them, or with subse- 
quent legislatures, and their contracts when made are 
under the same protection as other contracts." 

State vs. Bank of Smyrna, 2d Houston's Reps., 
(Del.), 99. 

Opinion by Chancellor Harrington. 

In Singer Mfg. Co. vs. Holdfodt, 86 111., 454, the 
opinion of the court was by Ch. J. Schofield, who said : 

"It is contested that appellant, being a cor- 
poration, cannot be made to respond in vindictive 
damages unless the wrongful act was authorized or 
approved by the corporation. This is not in accord- 



106 Corporation Law as Applied 

ance with the ruling of this court. Ever since the 
decision in St. Louis, A. & C. R. Co. vs. Dolby, 19 
111., 353, it has been regarded as settled law, that if 
the wrongful act of the agent is perpetrated while os- 
tensibly discharging duties within the scope of the cor- 
porate purposes, the corporation may be liable to vin- 
dictive damages." 

The question of corporate liability was clearly de- 
termined in the United States Supreme Court, in Den- 
ver & Rio Grande Railway vs. Harris, 122, U. S., 
597, et seq. This case was of great importance; the 
opinion of the court was delivered by Mr. Justice 
Harlan. The learned justice said : 

"In Philadelphia, Wilm. B. R. R. vs. Quigley, 21 
How. U. S., 202, this court held that a railroad corpo- 
ration was responsible for the publication, by them, 
of a libel in which the capacity and skill of a mechanic 
* * * were falsely and maliciously disparaged and 
undervalued. >k * * ^j^^ court upon a full review 
of the authorities held it to be the result of the cases, 
that for acts done by the agents of a corporation, 
either in contractu or in delicto, in the course of its 
business and of their employment, the corporation is 
responsible, as an individual is responsible under simi- 
lar circumstances." 

In State vs. Morris & Essex Railroad, 23 N. J. Law 
(2 Zabriskie), 369, it was well said that: 

"If a corporation has itself no hands with which to 
strike, it may employ the hands of others; and it is 
now pretty well settled, contrary to the ancient authori- 



to Private Business Corporations 107 

ties, that a corporation is liable civiliter for all torts 
committed by its servants or agents by authority of 
the corporation, express or implied, h^ * * The 
result of the modern cases is, that a corporation is 
liable civiliter for torts committed by its servants or 
agents precisely as a natural person, and that it is 
liable as a natural person for the acts of its agents 
done by its authority, express or implied, though there 
be neither written appointment under seal, nor a vote 
of the corporation constituting the agency or author- 
izing the act." 
See also. Salt Lake City vs. Hollister, ii8 U. S., 256, 

260; 
New Jersey Steamboat Co. vs. Brockett, 121 U. S., 

637; 
National Bank vs. Graham, 100 U. S., 699, 702 ; 

"Much has been said in the books concerning the 
'old doctrine' and the 'new doctrine' of corporate lia- 
bility for crimes and torts." 
Am. & Eng. Encyp. (2d Ed.), Vol. VII, 824, 825. 

A very intelligent idea of the subject can be obtained 
by reading Edwards vs. Union Bank of Florida, i 
Florida Supreme Court Rep., 158 (1845). 

The principal question was "whether an action of 
trespass vi et armis doth lie against a corporation." 
After speaking with great erudition of the earlier au- 
thorities, the learned Chief Justice Douglass said in 
his verbis : 

"In Riddle vs. The Proprietors of the Locks and 
Canals on the Merrimac River, 7 Mass., Reps., 186-8, 



108 Corporation Law as Applied 

although an action for a nonfeasance, Parsons, chief 
justice, entered fully and very ably into this question 
and shows, upon the authority of Thealal himself, the 
principal reference of Viner and Comyn, that Thorpe's 
opinion, which has been so much relied on, had been 
overruled in England as to certain trespasses; and 
takes what we deem the true and correct distinction 
between corporations of a public nature, called quasi- 
corporations, such as towns, cities, etc., and proper 
corporations aggregate, by which is meant money and 
business corporations, against which the action may 
(and we think sound policy requires should), be main- 
tained. ^ ^ ^ Iyi the case of Chestnut Hill, etc., 
Turnpike Co. vs. Rutter, 4 Serg. & Rawle (Pa.), Rep., 
6, which was an action of trespass on the case for 
stopping a watercourse, it was strongly objected that 
a corporation could not be guilty of a tort ; but Chief 
Justice Tillman said that this doctrine was fallacious 
in principle and mischievous in its consequences, as 
it tends to introduce actual wrongs and ideal remedies ; 
* * * 'there is no solid ground for a distinction 
betwen contracts and torts. "^ * '^' " 

"* * * Angel and Ames on Corporations, loth 
Am. Ed., pp. 224-226, is also authority to this point, 
and Chief Justice Marshall, in the case of Fowle vs. 
The Common Council of Alexandria, 3d Peter's Rep. 
409, lays it down as settled 'that money corporations, 
or those carrying on business for themselves, are liable 
for torts' ; not of particular description only, but torts 
generally committed by their agents. 



to Private Business Corporations 109 

"In the case of John Whitemong's Ex. vs. The 
Wilmington & Susq. R. R. Co., 2 Harrington's Rep. 
(Del.), 514, it was held that ^trespass will lie against 
a corporation/ as in the case of Dater vs. Troy Turn- 
pike & R. R. Co., 2 Hills (N. Y.), Rep., 632, Cowen, 
Justice, said : 'The old doctrine was always admitted 
to be questionable (i Kyd on Corporations, 223), that 
trespass or ejectment will not lie against a corporation 
— is exploded by modern authorities." 

It was held in Missouri that a railroad company 
might become liable as a "joint tort-feasor." 
Ullman vs. Han. & St. Joe. R. R. Co., 67 Mo., 118. 

In Main vs. North Eastern Railroad Co., 12 Rich. 
Law (South Carolina), 82, Mr. Justice Whitner says: 

"In the case of Yarborough vs. Bank of England, 16 
East 6, Lord Ellenborough says the only question was 
whether an action of trover is maintainable against a 
body corporate ; in other words, whether a corporation 
can be guilty of a trespass or a tort. 

"By reference to Grant's 'treatise,' quite an array 
of cases are cited against railway companies, banks 
and other corporations, in case and in trover, in which 
actions have been sustained in English and American 
courts recognizing the principle generally that a cor- 
poration is liable in tort for the tortious act of their 
agents, thus placing the corporation in such respect 
very much on the same footing as individuals. * * *" 

The foregoing was the opinion of the whole bench. 

The principle of corporate liability was upheld in 
Michigan Bath vs. Caton, 37 Mich., 199, the case 



110 Corporation Law as Applied . 

holding that where a trespass is committed by the sub- 
ordinate employees of a corporation, the doctrine re- 
spondeat superior applies to the corporation, rather 
than to its agent in charge : 

"A corporation, as is well established by the author- 
ities, may be made responsible in an action on the 
case for a tort, and even in an action of trespass, if 
by its managers and authorized agents it commands 
the trespass to be committed or sanctions and approves 
the act when committed." 

(Citing, I Chitty, 87.) 

Underwood, etc., vs. The Newport Lyceum (5 B. 
Monroe), 44 Kentucky Rep., 130. 

It is laid down in Addison on Torts, in substance, 
that a corporation may render itself liable for an action 
of tort, and may also be made responsible in an action 
for trespass. An action for a wrong lies against a 
corporation where the thing done is within the pur- 
pose of the corporation and has been done in such a 
manner as to constitute what would be an actionable 
wrong if done by a private individual. 
Vide Addison on Torts, sec. 114 (Am. Ed., Banks & 

Bros., 1891), Vol. I., 149, sec. 99 (old sec. 117). 

The above work, subsequent to the section quoted, 
gives several other instances of corporate liability, 
principally among gz^a^i-corporations. 

It may be well to note that the learned author says : 

"A corporation may become liable in damages for 



to Private Business Corporations 111 

the improper construction and management of dan- 
gerous premises and dangerous machinery." 
Ibid, sec. ii8 (old sec). 

But this is comprehended within the rule and doc- 
trine which is now so thoroughly established, viz., 
that a corporation is liable as a natural person : 

"It would seem to be settled by the authorities that 
trespass will lie against a corporation; and in reason 
and on principle if a man is injured by a tortious act 
of a corporation, done by its authority, he ought to 
have his remedy by action against them as much as 
against a natural person." 

Lyman vs. The White River Bridge Co., 2d Aikins, 
Vermont Reps., 255; vide the very learned opinion of 
Mr. Justice Prentice in the above, citing. 

The Chestnut Hill Turnpike Co. vs. Rutter, supra, 
and other governing cases. Also citing Chief Justice 
Parsons in 
Riddle vs. The Proprietors of the Locks and Canals on 

Merrimac River, 7 Mass., 187, 
wherein it was held that an action on the case would 
lie against an aggregate corporation for neglect of a 
corporate duty, etc., etc. 

Ibid (notes). 

As a resume of what is hereinbefore contained on 
corporation torts, it may be well to add what is said 
in B rice's Ultra Vires, p. 430 : 

"* * "^ It appears fully established in all the 
States (U. S.) that the liability of a corporation for 



112 Corporation Law as Applied 

fraud is precisely analagous to that of a private indi- 
vidual, and the results are precisely the same. 

"A corporation is everywhere liable for fraud, 
whether its own or that of its agents, as an ordinary 
citizen and is amenable to the same remedies, whether 
by action for damages, to avoid the agreements or to 
recover moneys paid." 

The note cites particularly and at length Dobson vs. 
Pearce, 12 N. Y., 156; Desford vs. Walbridge, 15 
N. Y., 374; and Sharp vs. Mayor of New York, etc, 
40 Barb. (N. Y.), 256 — a leading case. 



to Private Business Corporations 113 



CHAPTER VIII. 
The Charter. 

What the charter really is. — Some reference to origmal 
mode of creating corporations. — Evolution of mod- 
ern mode of incorporation. — The charter a con- 
tract. — This basic principle important. — Author- 
ities confirmatory of the foregoing doctrines. 

What the charter really is. — This subject is of the 
greatest importance in matters corporate, because it 
affects every possible phase of corporate life. 

To fully comprehend the subject and the sequent 
excerpts and citations, it is necessary to know what 
a charter really is. 

And, first, it must be noted that there are three terms 
used in connection with the corporate charter, viz. : 

First. — The ''charter," properly so called; an in- 
strument by which, in these United States, the sover- 
eign people, through their representative agents the 
legislature, by special grant and enactment, create 
bodies corporate and clothe them with divers and 
sundry rights, powers, privileges and immunities. 

Second. — The "franchise" ; which is not the charter, 
though often spoken of as such. Sometimes the term 



114 Corporation Law as Applied 

is used to denote the corporation itself. It is in reality 
the right or privilege which the charter conveys to 
and bestows upon the corporation. Chancellor Kent 
says : "A corporation is a franchise possessed by one 
or more individuals who subsist as a body politic," 
etc., etc. See Kent's Commentaries, Lecture XXXIII., 
first paragraph. The word "franchise" is, however, 
sometimes used interchangeably with the word "char- 
ter," as in the Americanized Encyclopedia Britannica, 
under such head, where it is said — 

"A franchise is a special privilege granted to an in- 
dividual by the government, whereby rights are con- 
ferred which do not belong to the citizen by common 
right; a very common instance of such right is the 
franchise or charter granted by the State to certain 
persons, authorizing them to engage in business as a 
corporation." 

The most approved idea, however, seems to be thai, 
the franchise is the right or privilege, and the char- 
ter the instrument by which this right and privilege 
is bestowed by the legislature upon the corporators, 
and which creates the corporation and is the measure 
of its power. 

Third. — The Certificate of Inc©rporation. This is a 
term which has been used since the enactment of gen- 
eral incorporation laws. It is, however, a misnomer; 
and the word is often a misleading one when con- 
founded with the "stock certificate," which is the 
proper designation of a document whose purpose is to 



to Private Business Corporations 115 

serve as authentic evidence of ownership of shares of 
capital stock. 

Some reference to original mode of creating corpora- 
tions. — In order to dispel the fog of uncertainty sur- 
rounding the expression, it is necessary to go back to 
the time when all corporations were created by special 
enactment of the legislature and a charter in due and 
regular form was deemed an absolutely necessary pre- 
requisite to corporate life and existence. (We pur- 
posely leave out the question of kingly prerogative, 
prescription and other matters which do not pertain 
to these United States.) 

All corporate existence was, formerly, in the absence 
of general laws, based upon the possession of a char- 
ter, and a special petition to the legislature and its 
affirmative act were required in every case wherein 
a corporation was to be created. 

In the granting of these charters it developed in 
time that favoritism often crept in, and in some States 
the question of such "special legislation" became a 
political issue. 

Evolution of modern mode of incorporation. — As 

perfect equality before the law is the basis of our 
Government, the people, with well-advised insistence, 
demanded that in regard to this matter of corporate- 
creation and in the granting of corporate rights, 
powers, privileges and immunities there should be ab- 
solute equality to all and favoritism to none, and that 
citizens (and sometinies citizens associated with oth- 



116 Corporation Law as ^Applied 

ers) might, in the matter of corporate creation and 
endowment, obtain as an absolute right that which 
theretofore could only be had by petition to the legis- 
lature. Furthermore, the people through their legisla- 
tures were also impelled to substitute the creation 
of corporations by general statutes in the stead of 
special legislative grant. The imperative need of 
securing the benefits which accrue to business and 
commerce from the aggregation of capital and the fore- 
stallation of death — advantages which are only to be 
had through the instrumentality of private business 
corporations — compelled the various States to mod- 
ernize their procedure respecting the creation and or- 
ganization of such companies, with the result that 
general incorporation laws were everywhere enacted. 

These laws, although varying in many ways in the 
different States, and though often changed, modified, 
amended or superseded by other acts or laws of similar 
nature, nevertheless have substantially the same fea- 
tures; and the spirit of all these laws and the intent 
and purpose of the various legislatures in enacting 
them has invariably been to create such a substitute 
for the specially granted charter as would fill the same 
place by accomplishing the same useful purpose. 
When this truth is fully realized it must certainly ap- 
pear that, notwithstanding technicalities and specious 
definitions, the instrument, which is either an evidence 
of the performance of all the formalities required by 
the incorporation law or a declaration of the intent 
and purpose of the corporators to avail themselves of 



to ^Private Business Corporations 117 

the benefits of the act — whether it be a "certificate" 
or a ''declaration," or whether it partakes of the nature 
of both — is, when read and cDnstrued in connection 
with the law, practically the same thing as a charter, 
because it is the legally provided substitute therefor; 
and this view of the matter appears to be sustained 
by the preponderating weight of authority, as will be 
seen from the extracts hereinafter set forth. 

The charter a contract. — The charter of a corpora- 
tion, whatever its name and however conferred, is 
neither more nor less than a contract by and between 
the sovereign creating power as the party of one part 
and the aggregation of persons forming the corpora- 
tion and their successors, the party of the other part : 
Wherein and whereby the creating party, the State, 
grants to the other party, the incorporators, within the 
limitations and restrictions of law, certain rights, pow- 
ers, privileges and immunities; and not only so, but 
this contractual element extends beyond the creating 
power and the corporation, and exists not only between 
the corporation and its members, but between the cor- 
poration and the public, making, as it were, a quasi- 
tripartite agreement; and this comprehends not only 
the persons originally named, but all of those who may, 
shall or will succeed them. This contractual relation, 
moreover, is a part of the res, and clings to it ever 
and always through every varying state of circum- 
stances. 

This basic principle important. — The above rule has 
been in many different ways and in diverse phraseology 



118 Corporation Law as Applied 

laid down and enunciated by the ablest jurists. With 
this principle in mind, many of the difficulties in the 
construction of charters and charter-laws (if the term 
is permissible), and of the laws in general, as applied 
to corporations, will disappear — it following as a 
natural and unavoidable sequence that the doctrines, 
principles and rules which govern contractual rela- 
tions are to a great extent equally controlling in cor- 
porate affairs. It is an apothegm with the medical 
profession that "it is not so hard to cure the patient 
as it is difficult to diagnose the complaint" ; so in the 
law, — if one well knows what rules and principles are 
applicable to a given case the appropriate remedies to 
enforce the right or to prevent the wrong are deter- 
mined with comparative ease; thus, when this con- 
tractual relation is fully known and appreciated, and 
when it is seen that the courts have so applied the 
rules and principles of law to matters corporate, it 
becomes practicable for the trained lawyer to deter- 
mine the situation, however complicated it may vX 
first have appeared. 

Authorities confirmatory of the foregoing doc- 
trines. — "An act granting corporate privileges to a 
body of men is, when accepted, a contract between the 
State and the corporators. It is not worth while now 
to try whether this doctrine will stand the test of the 
original principles. It is sustained by everything that 
we are bound to regard as authority, by the decisions 
of all the courts in the country, by the opinion of the 
legal profession and by the general acquiescence of 



to Private Business Corporations 119 

the people. It is not denied by the defendant or his 
counsel, or anybody else who has attempted to sus- 
tain the action of the legislature in this case. Being a 
contract, it cannot be rescinded by the act of one party 
without the consent of the other. A grant of corporate 
privileges for a specified period cannot be resumed by 
the State within such period. If the charter be with- 
out limitation as to time it is forever irrepealable. 

''It does not follow from this that corporations are 
beyond the reach of public control. When the privi- 
leges they enjoy are fraudulently abused, the courts 
may pronounce them forfeited. In some cases, also, the 
legislature, when granting the franchises, reserves to 
itself the right to revoke them. When the charter 
contains such a stipulation it is as much a part of the 
contract as anything else that is in it. 

"The legislative repeal of such a charter bears no re- 
semblance to the judgment of a court against the cor- 
poration on a quo warranto. They proceed upon prin- 
ciples as different as the functions of the legislature 
are different from those of the judiciary. 

"If the power to repeal be reserved its exercise is 
merely carrying out the contract according to its 
terms ; and the State is using her own rights, not for- 
feiting those of the company. 

"The power to repeal is sometimes reserved abso- 
lutely, so that the franchises of the corporation may 
be revoked whenever the legislature may think proper. 
It is sometimes reserved conditionally, to be exercised 
only in case a certain event shall happen. The event 



120 Corporation Law as Applied 

may be one which the corporators could not control, 
or it may be such a one as could not occur without 
some default of their own. In either case the charter 
is repealable when the event happens. 

"In the charter now under consideration the follow- 
ing clause occurs: 'If the said company abuse or mis- 
use any of the privileges hereby granted the legislature 
may resume the rights granted to the said company.' 
This was a reservation of the right to repeal the char- 
ter in case it should be violated. If it was violated, 
then the repeal was not breaking the bargain but 
keeping it; not impairing but enforcing the obligation 
of the contract. The plaintiff's counsel insists that 
inasmuch as the right to repeal depended on matter of 
fact, the right could not be exercised until the fact 
was ascertained by a judicial trial. But if this were 
not a mistake the reservation would be nugatory. 
When the abuse of a charter is judicially ascertained 
the corporation will be dissolved without the inter- 
vention of the legislature, and the court could not de- 
cide the fact to be true without pronouncing the judg- 
ment a forfeiture. 

"The legislature certainly meant to reserve something 
more than the right to dissolve the corporation after 
it shall be dissolved by the court. The power to kill 
what is already dead is no power at all. The argument 
of the plaintiffs on this point is altogether unsustained 
by authority. There are several cases directly against 
it. In Crease vs. Babcock (23 Pick, 234), the Su- 
preme Court of Massachusetts said that when the leg- 



to Private Business Corporations 121 

islature reserved to itself the right to repeal a charter 
on the happening of a certain event they might enact 
the repeal whenever the event happened; it was not a 
reservation of judicial power. To the same effect is 
McLarren vs. Pennington, i Paige (N. Y.), 107; and 
in Miners' Bank vs. United States (11 Greene, 561), 
it was held not only that the fact on which the right 
of appeal depended might be noticed by the legislature 
without the assistance of the judiciary, but that its 
truth could never afterward be questioned by any 
court. Without intending to endorse the whole doc- 
trine of the last mentioned case, we are very clear 
that the right to appeal vests in, and may be exercised 
by, the legislature whenever the event occurs upon 
which they stipulated for the right. If the corporators 
desire to contest the validity of the repealing act in 
a court they must at least prove that the event did not 
occur. 

*'The most important privilege and highest immunity 
which a corporation may enjoy is that of holding its 
franchise by a tenure above the reach of the law-mak- 
ing power which regulates everything else in the State. 
When this immunity is bestowed on certain conditions 
the conditions cannot be changed without changing 
the charter, and no such change can be made except 
by the express and plain words of the legislature. The 
corporation claims to hold the immunity, and for its 
title it points to a bill in equity filed by the attorney- 
general and to a decree of the Supreme Court and to 
its own act in removing the road. But the corporation 



122 Corporation Law as Applied 

itself cannot add anything to the charter, nor can it 
do so even with the assistance of the executive and 
the judiciary. It still has no more than what the legis- 
lature gave it, and the legislature did not give it what 
it now claims. 

''Another and still plainer view of the argument based 
on the law of estoppel may be taken. It is a familiar 
and well-established rule of constitutional law that the 
prohibition to impair the obligation of contracts is 
not applicable to an act of assembly, unless it violates 
directly some right secured by an existing contract, 
bargain or agreement. That provision does not pro- 
tect from legislative interference other rights acquired 
or created in other ways. Here, now, is an Act of 
Assembly which enforces one of the stipulations of a 
contract between the State and a corporation. The 
corporators say to the legislature, 'You shall not do 
the thing. We admit that your act is according to 
the very terms of our agreement; but certain facts 
and circumstances have occurred since which bind you 
in justice, equity and law to abstain from taking ad- 
vantage of the agreement.' The short and conclusive 
answer of the legislature is this : 'To enforce a contract 
is not to impair it, and whatever the obligations may 
be which arise out of the subsequent facts, it is enough 
that they are not obligations of the contract.' 

"A harder task cannot be imagined than that of prov- 
ing the law before us to be void on the ground con- 
tended for. The argument would have been successful 
if there had been anything in the Constitution to for- 



to Private Business Corporations 123 

bid the carrying out of the contracts. It might not 
have been a faihire if the obhgation of contracts could 
be interpreted to mean all obligations of every kind, 
however created. And it would probably have been 
triumphant if counsel coiild ha\*e shown that the power 
which is given to the legislature by the Constitution 
is taken away by rules of court." 
Erie etc., R. R. Co., vs. Carey, 26 Pa. St., 287-301-303. 
The opinion of the court was delivered by Mr. Justice 
Black. 

''When a corporation is sought to be organized 
under the general law the declaration which the law 
requires to be signed and recorded is an acceptance 
by the corporators, under the name designated, and 
for the objects expressed, of the corporate powers and 
capacity the law confers. ^ ^ * Qf every cor- 
poration formed under the general law the law itself 
and not the declaration of incorporation or the con- 
stitution and by-laws adopted for government becomes 
the charter and enumerates the powers which are to 
be exercised and the nature and extent of the corpo- 
rate franchises and privileges. "^ * * It is appar- 
ent from an examination of the statute that the crea- 
tion of corporations under general laws rather than 
by special legislative enactment was not intended to 
work any essential change in their nature or charac- 
ter. Whether deriving existence from a special law 
or from incorporation under the general law, the cor- 
poration is an artificial being of legislative creation, 
having no other powers or properties than such as the 



124 Corporation Law as Applied 

law confers, or which may be incidental to their very 
existence. * * * 'pj^g office and the effect of the 
declaration the statutes do not leave in doubt when 
recorded, the persons signing it and their successors 
become a body corporate by the name stated therein 
and with the powers conferred by law. It is an ac- 
ceptance, under the -name designated, for the object 
expressed, of the corporate powers and capacity the 
law confers and a statement of the principal constitu- 
ents of the corporation, the amount of the capital 
stock, the name of the stockholders and the quantity 
of interest each has in the capital stock. There is no 
authority of law for introducing more into it, and if 
more be introduced it is a mere surplusage, not adding 
to or detracting from the force of the declaration. A 
controlling purpose in authorizing or in compelling 
the creation of private corporations under general 
laws is to secure uniformity and equality of corporate 
powers, functions and privileges; that all corpora- 
tions of the same class, formed for like purposes, 
should possess the same capacities and properties and 
exercise and enjoy the same franchises and privileges. 
Unless it was intended to work a radical change in 
the nature and character of these artificial beings, the 
mere creature of the law, and to subvert the whole 
theory which had prevailed in reference to them, it 
cannot have been contemplated that they should for 
themselves create power and privileges by declaration 
or reservation, whether the declaration is expressed 
in the articles of incorporation or in the constitution 



to Private Business Corporations 125 

and by-laws ordained by the corporators for their gov- 
ernment ; such declarations or reservations would soon 
become more liberal and diverse than was the liber- 
ality and diversity of the grants of power by special 
legislative enactment, the evil it was intended to re- 
move. Of every corporation formed under the general 
law, the law itself becomes the charter, defines and 
enumerates the powers which are to be exercised, the 
nature and extent of the corporate franchises and priv- 
ileges. The declaration of incorporation — the consti- 
tution and by-laws adopted by corporate government — 
do not define or enumerate the corporate powers. 
These are the acts of the corporators. The charter is 
the grant from the sovereign power of the State, and 
by that source only can be varied or enlarged. * ^ * 

"The power must be found in the law from which 
corporate existence is derived, or must have been con- 
ferred by a subsequent law, the provisions of which 
were observed in the exercise of the power.'' 
Grangers' Life, etc., Ins. Co. vs. Kamper, 73 Ala., 325. 
etc. (1882.) 

The foregoing extract is from the opinion of Chief 
Justice Brickell, of the Alabama Supreme Court. The 
opinion is given thus in extenso, because of the able 
manner in which it elucidates the matter in hand. 

In Pennsylvania it was thus decided : 

"Under the law of 1791, where the instrument 
specifying the objects, articles, conditions and name 
of the association are approved by the attorney general 



126 Corporation Law as Applied 

and the Supreme Court, and enrolled according to law, 
the persons associating become a corporation accord- 
ing to the objects, articles and conditions contained 
in the instrument. These become their charter and 
have the same force and effect in law as if they were 
specifically granted by special act." 
Society, etc., etc., vs. Commonwealth ex rel Meyer, 
etc., etc., 52 Penn. State Reps., 125, 131. 

The opinion of the court in this case was delivered 
by Justice Agnew; Woodward, Ch. J., dissented from 
the opinion in some points, but not from the principles 
above set forth. 

"* * * Having the force and effect of law by 
the provisions of the act allowing the incorporation, 
it stands upon a strictly legal foundation and is no 
longer a subject of judicial inquiry as to the fitness 
of its objects, conditions and articles." 

Ibid. 

The above case was concerning an eleemosynary 
corporation, yet sustains the general principle and doc- 
trine. 

In Nebraska it was said : 

"In this State the legislature does not by a special 
act charter a corporation, but all corporations are 
formed under general laws and these laws and the 
articles of incorporation adopted in conformity with 
such laws constitute the charter of a corporation of 
this State." 

Lincoln Shoe Mfg. Co. vs. Sheldon, 44 Nebraska 
Reps., 279. 



to Private Business Corporations 127 

In Michigan, in 

Van Etten vs. Eaton, 19 Mich., 187, 

Mr. Justice Graves delivered the unanimous opinion 
of the court, saying (page 194) : 

"The organic act under which the corporation was 
formed, together with the articles of association, are 
to be considered as the charter of the company, and 
they are in the nature of a grant from the State to 
the corporators, expressing the rights and privileges 
conferred and the conditions annexed to them, and the 
deliberate acceptance of this grant, with the rights and 
privileges involved in it, is conclusive evidence in the 
civil proceedings authorized by section 23, of knowl- 
edge in the grantees or incorporators of all these con- 
ditions." 

Mr. Potter, late of the New York Supreme Court, 
in his able work on Corporations, thus defines the re- 
strictive and controlling influence of the charter upon 
corporate acts: 

"* * * The by-laws of a corporation must not 
be inconsistent with the charter, for it is this instru- 
ment that creates it an artificial being, imparts to it 
its powers, designates its objects and usually prescribes 
its mode of operation. It is, in short, the fundamental 
law of the corporation; and in its terms and spirit it 
is a constitution to the petty legislature of the body 
acting by or under it. Hence all by-laws in contra- 
vention of it are void." 

Potter's Law of Corporations, Vol. L, p. 116, sec. 7i. 



130 Corporation Law as Applied 

it is as visible in the eye of the law as any other right 
whatever of which natural persons are capable; it is 
a right of such a nature that every member, separately 
considered, has a free hold in it, and all, jointly consid- 
ered, have an inheritance which may go in succession. 
Natural persons, as such, are capable of taking and 
holding this right, which is not taken or held in their 
politic, but in their natural capacity; for many men, 
as men, are capable of union which, if it requires proof 
or illustration, is evident from the charters of crea- 
tion, and the pleadings in all such cases in which it is 
said that the 'men and burgesses' or the 'men and citi- 
zens' are constituted one body corporate or politic. 
And as the natural persons essentially constitute the 
body politic, so all the operations and exercise of this 
right are performed only by the natural persons. 

"When it is said that a corporation is immortal we 
are to understand nothing more than that it is capa- 
ble of an indefinite duration, and the authorities cited 
to prove its immortality do not warrant the conclusion 
drawn from them. If a man gives lands, says Sir 
Edward Coke, to a mayor and commonalty or other 
body aggregate consisting of many persons capable, 
without naming successors, the law construes it to be 
a fee simple because, in judgment of law, they never 
die ; where the sense is plain that these natural persons, 
though capable to take in their natural capacity jointly 
which the law would adjudge an estate for life, yet 
the grant being made to them in their corporate name, 
they take in that capacity, and the grant is not deter- 



to Private Business Corporations 131 

minable on the death of any of the individuals, but 
continues as long as the corporation continues. 

"In support of this idea of the immortality of corpo- 
rations a passage is also cited from Gratius, which, 
however, when fairly considered, is so far from justi- 
fying the conclusion drawn from it that it proceeds on 
the supposition that they may cease to exist. 

"It has been said that a corporation aggregate has 
neither predecessor nor successor, an expression which 
probably arose from the comparison of a corporation 
with a natural body, with respect to its personal 
identity, which means nothing more than that all 
the individual members that have existed from the 
foundation to the present time, or that shall ever here- 
after exist, are but one person in law in the same man- 
ner as the river Thames is still the same river though 
the parts which compose it are continually changing." 

Kyd on Corporations, Vol. I., p. 13, et seq. London 
Edition, 1793. 

The franchise of a corporation is one thing, its 
property another and different thing; although the 
"franchise" may have a great money or intrinsic value. 

"There is also to be noted a distinction between the 
grant of a franchise and a mere license, in that the 
former comes within the protection of the rule in the 
Dartmouth College case, while the latter is revocable 
at the pleasure of the grantor. Thus it is held that a 
supplement to a charter, which merely conveys a new 
right or enlarges an old one without imposing any 



132 Corporation Law as Applied 

additional burden, is a mere license or promise by the 
State and may be revoked at pleasure" 
Beach on Private Corporations, Vol. II., p. 39, etc., 

sec. 21. 

In Wilmington R. R. vs. Reid, 13 Wallace (80 
U. S.), 264, we have the opinion of that great jurist, 
David Davis, of the United States Supreme Court, 

who says : 

"It has been so often decided by this court that a 
charter of incorporation granted by a State creates a 
contract between the State and the corporators which 
the State cannot violate, that it would be a work of 
supererogation to repeat the reasons upon which the 
argument is founded." 

See also Bouvier's Institutes, as follows : 
"Private corporations give a right to the corpora- 
tors of which they cannot be deprived without their 
consent unless the act of corporation or charter re- 
serves to the legislature the power to do so, and in 
this they differ from public or political corporations, 
because in the latter no vested right is violated by the 
change, and the legislature may at pleasure alter the 
provisions of their charter or constitution." 

Bouvier's Institutes, Vol. L, p. 42, sec. 184. 

As is seen herein, the authorities show beyond dis- 
pute that the charter, or its equivalent, being con- 
tractual in its nature and the rights thereunder having 
become vested, the legislature cannot disturb the same 
m any case where such disturbance will impair the 



to Private Business Corporations 133 

obligations of a contract; so that the question of 
'Vested rights" is necessarily involved in the discus- 
sion of charters. And in this connection it will be 
useful to set forth the very able and valuable elu- 
cidation of the subject of 'Vested rights" made by the 
learned and distinguished Mr. Justice Brown, of the 
United States Supreme Court, in a very important 
case of comparatively recent date: 

"A vested right is defined by Fearne in his work 
upon contingent remainders as 'an immediate fixed 
right of present or future enjoyment,' and by Chan- 
cellor Kent as 'an immediate right of present enjoy- 
ment, or a present fixed right of future enjoyment.' 
4 Kent's Corns., 202. It is said by Mr. Justice Cooley 
that 'rights are vested in contradistinction to being 
expectant or contingent. They are vested when the 
right to enjoyment, present or prospective, has become 
the property of some particular person as a present 
interest; they are expectant when they depend upon 
the continued existence of the present condition of 
things until the happening of some future event ; they 
are contingent when they are only to come into exist- 
ence on an event or condition which may not happen 
or be performed until some other event may prevent 
their vesting.' Cooley's Principles of Constitutional 
Law, 332." 
Pearsall vs. Great Northern Ry., 161 U. S. R., 673. 

The gravamen of this decision was the consolidation 
of railway corporations. Concerning "vested rights" 
generally see the subject considered in connection with 



134 Corporation Law as Applied 

the Dartmouth College case at a later place — Chapter 
XXIII. 

The opinion of Lewis, J. (1854) McMasters vs. 
Reed's Executors, ist Grant's Cases, 47 (Pa.), con- 
tains the following : 

''It is said sometimes that privileges not expressly 
granted in a charter are withheld." 
Citing, Bank of Pennsylvania vs. Commonwealth, 7 

Harris (Pa.), 144. 
Packer vs. Sunbury, etc., R. R. Co., 7 Harris (Pa.), 
211. 
"At other times it is declared that a corporation 
can exercise no power except those which the law 
confers upon it, or which are incident to its exist- 
ence." 

Citing, Perrene vs. Chesapeake, etc.. Canal Co., 9 Har- 
vard (U. S.), 172, 184; 
Dartmouth College vs. Woodward, 4 Wheat. (U. S.), 

518,636; 
Bank of Augusta vs. Earle, 13 Pet. (U. S.), 519, 589; 
Rungen vs. Caster, 14 Pet. (U. S.), 122, 129. 

"These rules were applied to cases in which the cor- 
porations were claiming monopolies in conflict with 
the rights of the Government or its grantee, or were 
demanding exemption from their proper proportion 
of the public taxes. The rules were sufficient for the 
cases to which they were applied; but they are not 
stated with sufficient precision for general application, 
and they do not accurately express the true rule for 



to Private Business Corporations 135 

the decision of cases in which there is no conflict with 
the Government or its grantee, and where no privilege 
is claimed in derogation of the public rights. Corpo- 
rations possess both power and privileges. These 
powers are often expressed in their charters; but they 
<are frequently implied from the duties imposed. In 
the latter case they are but incidents to the principal 
matter and partake so much of its character that they 
ought to be denominated duties instead of privileges. 
A corporation may be clothed with power to perform 
its duty, to bear a burden, to pay a debt, or if unable 
to pay immediately, to give an obligation for it payable 
at a future day. But this power can scarcely be called 
a privilege which is to be grudgingly withheld, unless 
expressly granted by its charter. And any construc- 
tion which would relieve corporations from these ob- 
ligations would be inverting altogether the rule of 
strict construction and would, in fact, be conferring 
privileges of a character highly injurious to the public. 

'The true rule applicable to the case now under 
consideration is given by Chancellor Kent in these 
words : 

" 'The modern doctrine is to consider corporations 
as having such powers as are specifically granted by 
the act of incorporation, or as are necessary for the 
purpose of carrying into effect the powers expressly 
granted, and as not having any other.' " 

(2 Kent's Comm., sec. 298; see also sec. 299, Little, 
Brown & Co.'s Boston Ed., 1858,) 



136 Corporation Law as Applied 

The learned Mr. Justice Lewis, in MacMasters vs. 
Reed's Executors, supra, continues : 

''The Supreme Court of New York has adopted the 
same rule: 

" 'A corporation for a specific object has no rights 
except such as are expressly granted and those that 
are necessary to carry into effect the powers granted. 
Many powers and capacities are tacitly annexed to a 
corporation duly created ; but they are such only as are 
necessary to carry into effect the purposes for which 
it was established.' 

(People vs. Utica Ins. Co., 15 Johns (N. Y.), 383; 
N. Y. Firemen's- Ins. Co. vs. Sturges, 2 Cowen 

(N. Y.), 675; 
Same vs. Ely, id., 699.) 

"Angel and x\mes also announce the general rule 
to be that a corporation 'has power to make all such 
contracts as are necessary and usual in the course of 
business, as a means to enable it to attain the object 
for which it was created, and none other.' 

(Angel and Ames on Corporations, 245.) 

"And the Supreme Court of this State has dis- 
tinctly adopted the rule that 'a corporation duly cre- 
ated has tacitly annexed to it, without any express 
provision, every capacity that is necessary to carry 
into effect the purpose for which it was established.' 
(Dana vs. Bank of U. S., 5 Watts and S. (Pa.), 243.) 

"In accordance with this principle it has been de- 
clared in a work of authority that 'in general an ex- 



to Private Business Corporations 137 

press authority is not indispensable to confer upon a 
corporation the right to borrow, to deal on credit, or 
become a drawer, endorser or acceptor of a bill of 
e:^change, or to become a party to any negotiable 
paper/ Corporations are expressly mentioned in the 
statute of Anne, respecting promissory notes, as per- 
sons who may make and endorse negotiable notes and 
to whom such notes may be made payable. 
(Angel and Ames on Corp., 234; Mott vs. Hicks, i 

Cow. (N. Y.),5i3; 
Kelley vs. Mayor of Brooklyn, 4 Hill (N. Y.), 265; 
Moss vs. Oakley, 2 Id., 265 ; 

Banker vs. Mechanics' Ins. Co., 3 Wend. (N. Y.), 97.) 
"These authorities are full to the point. But it 
seems clear upon principle, as well as upon authority, 
that corporations are bound by all contracts, whether 
express or implied, whether by hand, bill of exchange 
or negotiable note, entered into in the usual and neces- 
sary course of their legitimate business, except where 
there is a statutory prohibition. 

"The case of 
Braughton vs. Manchester, etc., Waterworks, 3 Barn. 

and Aid., i, 
is sometimes cited as an authority against this propo- 
sition, but it cannot be so regarded. There was a 
prohibition by statute in that case, and the decision 
was placed upon that ground. 

"The charter of the Erie Canal Company contains 
the usual grant of corporate powers. The company is 



138 Corporation Law as Applied 

expressly authorized to purchase, sell, mortgage and 
otherwise dispose oi its real and personal estate, and 
to do all other things 'necessary for the proper busi- 
ness of the company.' What is 'the proper business of 
the company?' The completion of the canal and its 
preservation for the uses designated by law. It had, 
therefore, a right to enter into contracts for the work 
required for these objects. It was not usual,, and quite 
unreasonable, to pay before the work was done. The 
company was, therefore, inevitably obliged to contract 
debts for these purposes. If unable to raise the money 
for immediate payment, honesty required that it should 
give satisfactory engagements to pay at a future pe- 
riod, with legal interest for the delay. The corpora- 
tion was unable to borrow money to complete the work. 
It gave these obligations to its contractors in payment 
of debts contracted in *its proper business.' They are 
binding upon it unless they fall within the meaning 
of some statutory prohibition." 

The preceding pages are from 

McMasters vs. Reed's Executors, cited supra. 

In the Province of New Brunswick it is to be found 
that corporations are held to be as they were created, 
and have no inherent power of change. In 

Lloyd vs. The E. & N. A. Ry. Co., i8 N. B. (2d P. 
and B.), 194, 

it was held that "an incorporated company has no 



to Private Business Corporations 139 

power to change its corporate name without the au- 
thority of the legislature. * * *" 
Charlebois et al. vs. Delap et al., XXVI. Canada Sup. 

^Ct. Reports, p. 221, etc. (1895), 
was a leading case and involved the powers of corpo- 
rations. The prevailing opinion was by King, J., in 
which, among other things, he said : 

"A company incorporated for definite purposes has 
no power to pursue objects other than those expressed 
in the act Or charter, or such as are reasonably inci- 
dental thereto." 



140 Corporation Law as Applied 



CHAPTER IX. 

The Charter — {Continued) 

Extent and effect of contractual relation. — Legislative 
power to amend is limited by Constitution. 

Extent and effect of contractual relation. — The rule 
of law laid down in the Dartmouth College case (see 
Chapter XXIII. ) applies to contracts between corpora- 
tions and their members as well as to those between 
corporations and the State, their creator. 

"The relation between the stockholder and the cor- 
poration is one of contract.'' 

Clearwater vs. Meredith, i Wallace (U. S.), 25. 
Beach on Private Corporations, Vol. L, p. 42, sec. 
23. 

The stockholder subjects his interest to the control 
of the proper corporate authorities to accomplish the 
object of the organization, but he does not agree that 
the purposes shall be changed in its character at the 
will of the directors, or even of a majority of the 
stockholders. The contract cannot be changed with- 
out the consent of both contracting parties. 

Neither does the stockholder as an individual con- 
sent that the controlling interests shall pervert their 
powers or abuse their official knowledge of the corpo- 



to Private Business Corporations 141 

ration's affairs for a pecuniary or other advantage. 
What the legislature itself could not do (as will 
abundantly be shown hereafter), by way of amend- 
ment of the charter, — the directors or other officers, 
or the majority of the stockholders, or both in com- 
bination, cannot accomplish by deceit or indirection. 

The doctrine of the essential unlawfulness of op- 
pression by the majority of the board of directors or 
the majority of the stockholders, is especially import- 
ant at the present time, and the subject will be found 
pervading the pages of this work in many places. 

See particularly, Chapters XXII. to XXV., inclu- 
sive. 

In 
Salt Co. vs. East Saginaw, 80 U. S. (13th Wallace), 

373. 378. 
Bradley, J., delivering the opinion of the court, said: 

^'Charters granted to private corporations are held 
to be contracts; powers and privileges are conferred 
by the State and corresponding duties and obligations 
are assumed by the corporation, and if no right to 
alter or repeal is reserved, stipulations as to taxations, 
or as to any other matter within the power of the 
legislature, are binding." 

Corporate franchises granted to and accepted by 
private corporations are in the nature of legal estates 
and contracts within the obligation clause of the Con- 
stitution. 

The Pennsylvania College Cases, 13 Wallace (U. S.), 
190: 



142 Corporation Law as Applied 

"It is now too late to contend that any contract 
which a State actually enters into when granting a 
charter to a private corporation is not within the 
clause of the Constitution of the United States, that 
prohibits States from passing laws impairing the ob- 
ligations of contracts." 

Stone vs. Mississippi, etc., loi U. S., 814. 

Opinion of Mr. Chief Justice Waite. 

uy^ >ic * (Art. I, sec. 10.) The Doctrines of 
Trusts, Dartmouth College vs. Woodward (4 Wheaton 
[U. S.] 518), announced by this court more than sixty 
years ago, have become so imbedded in the jurispru- 
dence of the United States as to make them to all in- 
tents and purposes a part of the Constitution itself. In 
this connection, however, it is to be kept in mind that 
it is not the charter which is protected, but only any 
contract the charter may contain. If there is no con- 
tract there is nothing in the grant on which the Con- 
stitution can act." 

Ibid. 

As has been said, a charter is a contract, in the con- 
struction of which much has been said in the books. 
The general rules pertaining to contracts apply, 
though it is universally held that in construing public 
or quasi-^VihWc charters the version most favorable 
to the State must be adopted and applied. 

See 

State vs. Petway, 2 James (N. C), 296, 
opinion by Judge Battles. Though this case referred 



to Private Business Corporations 143 

to a public corporation, yet it sustains the general rule 
and principle that charters and incorporation statutes 
confer nothing by implication beyond these "inci- 
dentals," which have been spoken of supra. 

"Grants of franchises and exemptions in charters 
are construed strictly and most strongly in favor of 
the public and against the grant; the object being to 
protect the public against improvident grants made 
by implication without clear intention." 

Waterman on the Law of Corporations, Vol. I., p. 493, 
sec. 138, 

and cases cited. 

An important and leading case in point is : 

Commissioners of Indian Fisheries vs. Holyoke Water 
Power Co., 104 Mass., 446-451; 

opinion by Mr. Justice Gray. 

"As the constitution (State of Arkansas) expressly 
provided that the powers to amend might be exercised 
whenever in the opinion of the legislature the charter 
might be injurious to the citizens. * * >k 

"The question, then, is whether the amendment 
should have been held unauthorized because amount- 
ing to a deprivation of property forbidden by the Fed- 
eral Constitution. The power to amend cannot be 
used to take away any property already acquired under 
the operations of the charter or to deprive the corpo- 



144 Corporation Law as Applied 

ration of the fruits already reduced to possession of 
contracts lawfully made." 
Waite, Ch. J., in 

Sinking Fund Cases, 99 U. S., 700. 

"But any alteration or amendment may be made 
that will not defeat or substantially impair the object 
of the grant, or any rights which have vested under it 
and that the legislature may deem necessary, to se- 
cure that or other public or private rights." 

Gray, J., in 

Commissioners, etc., vs. Holyoke Water Power Co., 
104 Mass., 446. 

Greenwood vs. Freight, etc., 105 U. S., 13. 

Spring V. vs. Schattler, no U. S., 347. 

The foregoing and subsequent quotations show that 
the question of legislative power to alter or amend 
charters once granted, the weight of authority estab- 
lishes the doctrine beyond doubt, viz. : That where the 
legislature of a State has given to a corporate body 
rights, it cannot, after the same have once vested, with- 
draw them, except in cases where such legislature has 
expressly reserved such power; and even then it may 
not so alter or amend, where the same, in derogation 
of the Federal Constitution, works a substantial im- 
pairment of contractual obligations by exceeding the 
confines of the power thus reserved. 

People ex rel. Attorney General vs. Utica Ins. Co., 15 
Johns (N. Y.), 357, 358. 



I 



to Private Btisiness Corporations 145 

The very wise and learned Chief Justice Spencer 
*• therein said : 

"If there are certain immunities and privileges in 
which the public have an interest as contra-distin- 
guished from private rights, and which cannot be 
exercised without authority derived from the sover- 
eign power, it would seem to me that such immunities 
and privileges must be franchises. * * * All the 
elementary writers in adopting Finch's definition of a 
franchise join that it is a royal privilege or branch of 
the king's prerogative, subsisting in the hands of a 
subject." 

To citizens of a republic the idea of sovereignty is 
absolutely and entirely included in the powers of the 
"People," who, acting collectively within proper con- 
stitutional bounds, have every power and all the prac- 
tical elements of sovereignty. 

"When the words used in a charter of a corporation 
defining its powers have a common and well-under- 
stood meaning and are free from ambiguity and doubt, 
they may not be enlarged so as to embrace other sub- 
jects, by or in view of the tenets of any sects or the 
personal belief of the incorporators." 

Riker vs. Sampson, 133 N. Y., 519. 

The above case was not concerning a private busi- 
ness corporation, but sustains the doctrine of the in- 
violability of corporate charters. 

The theory of corporations is that the privileges con- 



146 Corporation Law as Applied 

ferred are in consideration of benefits to result to the 
public, and also that the State receives an equivalent. 

Ibid. 
Doughdrill vs. Ala. L. I. T. Co., 31 Ala., 91. 

The charter is the law of the contract between it 
and the subscriber to stock. 

M., O. & R. R. Co. vs. Cross, 20 Ark., 443. 

The importance of the charter is recognized in 
Evanston Elec. Illn. Co. vs. Kocharsberger, 175 Ills., 

26, 

where Mr. Justice Cartwright, in delivering the opin- 
ion of the Court, said : 

"In order to settle this question resort must be had 
to its charter." 

Legislative power to amend is limited by Constitu- 
tion. — 

In 

Distilling Co. vs. People, 161 Ills., loi, 
it was said : 

'Tt goes without saying that the purpose for which 
a corporation is organized must be ascertained by ref- 
erence to the terms of its charter. 

"The charter of a corporation designed for accom- 
plishment of a particular object, through investment 01 
funds of private individuals — at all events if fairly 
obtained — is a contract, at least after interests have 
become vested under it, which the legislature cannot 



to Private Business Corporations 147 

substantially impair without violating the Constitu- 
tion of the United States." 

Smead vs. J. T. & C. R. Co., ii Indiana, 104. 

The legislature, therefore, cannot make compulsory 
amendments materially affecting rights under such a 
charter, unless by virtue of some reserved power. 

Ibid. 

A corporation is not bound by an amendment taking 
away the right of the stockholders generally to elect 
officers and conferring that right on a few, where it 
is not asked for nor accepted, by- a majority of the 
stockholders. 

Although the right to amend the charter of a pri- 
vate corporation may be expressly reserved, that right, 
does not confer upon the legislature the power thus to 
take from the corporators the control of the corporate 
property; nor does it authorize the legislature to 
change the object of the charter by taking the elective 
franchise from those stockholders having such right 
to elect officers under the charter, and placing it in 
the hands ol those whose stock, by reason of the in- 
creased voting-power conferred by the amendment, 
will in future be able to control the corporation. 

Ibid. 

The above case was one concerning a quasi--pnh\ic 
(turnpike) corporation, and the object sought was to 
obtain mandamus to compel election of officers, etc. 
An amendment was made to the charter by the legis- 



148 Corporation Law as Applied 

lature, and in regard to its acceptance Judge Pryor 
delivered the opinion of the court, and said : 

"The acceptance of such an amendment by the cor- 
poration should not be dispensed with solely to gratify 
the desire or advance the interests of those who ob- 
tained it without consent of the body corporate." 

Charters are contracts. 
Rockland Water Co. vs. Camden, etc., 80 Maine, 544. 

But when rights have become vested in stockholders 
the legislature may not destroy or impair those rights. 

Ibid. 

The legal existence of a corporation is always open 
to inquiry at the suit of anyone injured by the doings 
of a corporation claiming existence through void pro- 
ceedings. 
Bonaparte vs. Bait. & Hamden, etc., Co., 75 Md., 310 

(1892). 

This is a leading case and discusses at length and 
in an able manner the question of acceptance of char- 
ter, forfeiture and kindred subjects. The opinion of 
the court is by Mr. Justice Irving; a dissenting opinion 
was delivered by Mr. Justice Bryan, both of which are 
well worthy of perusal. 

A charter of incorporation is a contract by the State 
granting it, within the United States Constitution. 
New Orleans, Jackson & G. N. R. Co. vs. Harris, 5 

C, 517- 

The incapacity of the majority to alter fundamen- 



to Private Business Corporations 149 

tally the charter against the consent of even a single 

corporator was recognized in the case of 

Curtiff vs. The Manchester & B. C. Co., 12 Eng. Ch. 

Ibid. 

See opinion of Chief Justice Smith in the above, and 
numerous cases cited. 

In Nebraska the general corporation statute and the 
articles of incorporation are considered in the nature 
of a grant from the State and together constitute its 
charter. 

Livesey vs. Omaha Hotel Co., 5 Neb. 50. 

Chief Justice Black has expressed his views on this 
subject in the following forceful and characteristic 
manner, holding: 

''That an act of incorporation is a contract between 
the State and the stockholders, is held for settled 
law by the Federal Court and by every State Court in 
the Union; all the cases on the subject are saturated 
with this doctrine. It is sustained not by a current, 
but by a torrent of authorities. No judge who has a 
decent respect for the principles of stare decisis — 
that great principle which is the sheet-anchor of our 
jurisprudence — can deny that it is immovably estab- 
lished. * * * ." 

The powers of corporation are to be found in its 
charter alone, and the rule is that a power not clearly 
conferred must be deemed withheld. 



150 Corporation Law as Applied 

Bank of Pennsylvania vs. Commonwealth, 19 Pa., St. 
Rep., 144, 151. 

A corporation can have no other powers except such 
as are conferred by its charter, either in express terms 
or by implication. 

Lagrone vs. Timmerman, 46 South Carolina, 372. 

In Tennessee, 

City of Memphis vs. Hernando Ins. Co., 65 Tenn. 

Rep. (6 Baxter), 527 
(a case concerning the subject of taxation of corpora- 
tions and their contractual relations to the State) the 
holding of the Dartmouth College case, that a charter 
is a contract, was sustained. That decision appears 
more reasonable and logical in its terms than the treat- 
ment of the same question in Ohio, in certain cases, 
which we do not deem of sufficient weight to be herein 
cited. 

Chief Justice Nicholson, in the foregoing (City of 
Memphis vs. Hernando Ins. Co.), said: "* h« >h jf j^ 
was an open question in our State, it might be very 
well questioned whether one legislature has the right 
by an act of incorporation for a consideration * * * 
to exempt certain property rights, or franchises, from 
taxation by a subsequent legislature. But, as re- 
marked by Mr. Cooley on page 280 of his work on 
Constitutional Limitations, it has so often been decided 
by the Supreme Court of the United States, though not 
without remonstrance on the part of State courts, that 



to Private Business Corporations 151 

it is a contract protected by the Constitution, that the 
question can no longer be an open one. 

"It involves the construction of the United States 
Constitution forbidding the States to pass laws impair- 
ing the obHgations of contracts, and on that account 
the decisions of the Supreme Court of the United 
States must be regarded as conclusive of the question. 

''And right here it may be added that the question 
of the impairment of the obligation of contract is of 
that class of rights which has called forth the demand 
for and which has been contained in every 'Bill of 
Rights' of the English-speaking races. 

"The decision of Chief Justice Marshall looked out 
and beyond the mere petty idea of fattening State 
treasuries, and reached out to nobler and grander equi- 
table principles : To wit, that any citizen of any one 
of these confederated States had the right to invest 
his money in any State corporation, trusting and be- 
lieving that such States could not and would not 
make a so-called Indian gift, namely, give to-day and 
demand back to-morrow. The justice and virtue of 
the holdings of those greatest of great American law- 
yers, Marshall and Story, are, and ever will be, on the 
subject, the supreme law of the land, and above all 
things wise and just." 

In Utah, the charter must determine the uses and 
purposes of the corporation. 

Irrigation Co. vs. Canal Co., i6 Utah, 246. 



152 Corporation Law as Applied 

The creation of a corporate franchise is an attribute 
of sovereignty exercisable by the State alone. 
Brennan vs. Weatherford, 53 Tex., 336. 

In this case Bonner, J., cites approvingly : 
Bradley vs. R. R. Co., 21 Conn., 294, 

in which it was held that "a more liberal rule of con- 
struction is allowed in favor of public charters granted 
for the general good, than in private charters (grant- 
ed) for individual gain"; as a corollary to this, it 
would appear that the construction of private business 
charters must be strict. 

A leading case affecting corporations which existed 
in the Territories before they were formed into States, 
is found in 

Atty. Gen. vs. R. R. Co., 35 Wisconsin, 425 to 608 
inclusive. 

The subject involved in this case is one of great mo- 
ment, and it contains a large amount of excellent 
matter pertinent thereto, but which cannot be repeated 
here. The following passages only will be quoted : 

"A corporate charter cannot be altered to a charter 
of an entirely different kind; but a charter may so be 
altered as to make it different in detail, so long as 
the general identity of the corporation remains. 

"To alter is to make different without destroying 
identity (Crabbe), to vary without entire change." 

The opinion in the above is by Ryan, C. J. 



to Private Business Corporations 153 

In all things outside and independent of charter 
privileges, corporations are amenable to, and governed 
by, the general laws of the State, to the extent and in 
the same manner as individuals. 

Hunt vs. Bulloch, 23 Ills., 320. 
The charter of a corporation is the full measure of 
its powers. 

Health U. vs. People ex rel Maloney, Atty. Genl., 
166 Ills., 171 (1897). 
A corporation has no other powers than those ex- 
pressed in its charter. 

The People vs Pullman Car Co., 175 Ills., 125-182 
inclusive (1898). 

This case was very important. The opinion was 
delivered by Mr. Justice Boggs, and as a wise and 
learned disquisition upon the subject of corporate pow- 
ers, it is well worthy of careful examination. 

In New Jersey, the following was enunciated : 

"The case in hand is in marked constrast with 
Kean vs. Johnson, i Stoock (N .J.), 401; 

Zabriskie vs. Hackensack, etc., R. R. Co., 3 C. E. Gr. 

(N. J.), 178; 

Black vs. Delaware & Raritan Canal Co., 9 C. E. Gr. 

(N.J.),455; 

Mills vs. Central R. R. Co., 14 Stew. Eq. (N. J.), i. 
in which case the doctrine of the inviolability of con- 
tracts between stockholders, without the consent of 
each stockholder, has been stated, exemplified and up- 



154 Corporation Law as Applied 

held by our courts. In each of them there was a rad- 
ical change in the purpose and objects of the corpora- 
tion. * * ^ 

"Both these changes in the contractual rights of the 
stockholders were held by the learned judge to be a 
fundamental alteration of the contract and a 'material 
deviation' from the original object, and devotion of 
the funds to objects 'essentially different' from those 
originally contemplated, etc. * * =5* And Mr. Beach, 
in his treatise on Private Corporations, sec. 41, speak- 
ing of amendments to charters which should bind 
stockholders, says: 'If the amendments be for the 
benefit of the corporation, or merely auxiliary to the 
original purpose for which the company was organ- 
ized, the consent of a majority of the members is suf- 
ficient to render it effective and binding upon all the 
incorporators,' — citing a large number of authorities 
for that position. 'But,' he continues, 'if the amendments 
be fundamental, radical and vital, the unanimous ac- 
ceptance of all the incorporators is requisite to render 
it binding, etc' And in sec. 42, distinguishing be- 
tween changes that are material and those that are 
immaterial, he says : 'Whether an amendment be 
material or immaterial depends largely upon the cir- 
cumstances of each particular case. Under certain 
circumstances, amendments authorizing railway com- 
panies to build branch lines have been held to be merely 
auxiliary to the original purpose of incorporation, and 
acceptance thereof by a majority of the stockholders 
was deemed sufficient." 



to Private Business Corporations 155 

Meredith vs. New Jersey Zinc and Iron Co., 59 N. J., 
Eq., 257. 

The construction of a charter should be as of any 
contract between individuals, according to the spirit 
as well as to the letter. 

Spelling on Private Corporations, sec. 138, — citing, 

Thomas vs. R. R. Co., loi U. S., 71 ; 
White vs. Syracuse, 14 Barb., 559. 

The incapacity of the majority to alter fundamen- 
tally the charter, against the consent of even a single 
corporator, was recognized in the case of 
Curtiff vs. The M. & B. C. Co., 12 Eng. Ch. R., 131. 
See opinion of Chief Justice Smith in the same, and 
numerous cases cited. 

A well-ordered discussion of the subject of corpora- 
tion charters and the contractual obligation will be 
found in Wharton's Commentaries on American Law, 
sec. 477 (p. 549 et seq.). Philadelphia Edition, 1884. 
The author cannot refer more explicitly to the con- 
tents of that highly esteemed work, which the reader 
should consult in this connection. 



156 Corporation Law as Applied 



CHAPTER X. 



By-L 



aws. 



riot necessary, but useful. — By-laws defined. — Power 
to create, and general purpose. — Must be reason- 
able. — By-laws must conform to charter. Con- 
stitution and statutes. — Right to make by-laws an 
inherent power. — Reference to decisions discussing 
subject broadly. — Rule as to judicial interference 
stated. — Effect of by-laws. — Additional authori- 
ties as to validity and judicial interference. — 
Distinction between by-laws and regulations. — 
By-laws bind corporate members. — Principle of es- 
toppel applies. — Rights of third parties not prejudiced. 

Not necessary, but useful. — By-laws are not abso- 
lutely essential to corporate life. The privilege and 
authority to make and enforce them is, however, a 
necessary incident to the corporate creation and is one 
of the implied powers which all corporations possess 
to promote orderly transaction of business. 

By-laws defined. — The by-law has been aptly de- 
fined by Spelling as 

''A rule of a permanent character adopted by a cor- 
poration for its internal government, obligatory upon 



to Private Business Corporations ' 157 

all its members and also with others who are ac- 
quainted with the method of the corporation in doing 
business. 

Spelling on Private Corporations, Vol. I., sec. 396, \). 

431- 
See Waterman on Corporations, Vol. I., sec. y2, p. 232. 
"A by-law is a rule or law of a corporation for its 
government, or for the government of its members 
and officers in the management of its affair-s. It is a 
legislative act of the corporation, so to speak, and in 
enacting it the solemnities and sanctions imposed by 
the charter must be observed." 
Thompson on the Law of Corporations, Vol. I., sec. 

935, P- 7^2 : 
Citing, Drake vs. Hudson R. R. Co., 7 Barb. (N. Y.), 

508. 539- 
Waterman, supra, cites Green's Brice's Ultra Vires, 

Vol. IL, p. 15 (Am. Ed.). 

Power to create, and general purpose. — We have 
seen that in constituting a body corporate, a legal or 
artificial person is substituted for a natural person, and 
that where a number of natural persons are concerned 
there is given to them the property of individuality. 
The common law of every State or country annexes to 
this local or artificial person, when created, certain 
incidents or attributes ; and both by the laws of Eng- 
land and the United States there are several powers 
and capacities which tacitly, and without any express 
provision, are considered inseparable from every cor- 



158 Corporation Law as Applied 

poration. Kyd enumerates five of these as necessar- 
ily and inseparably belonging to every corporation. 

''First. — To have perpetual succession; and hence 
all aggregate corporations have a power necessarily 
implied of admitting members in the room of such as 
are removed by death or otherwise. 

"Second. — To sue and be sued, implead and be 
impleaded, grant and receive by its corporate name, 
and to do all other acts as a natural person may. 

''Third. — To purchase lands and hold them for the 
benefit of themselves and their successors. 

"Fourth. — To have a common seal. 

"Fifth. — To make by-laws which are considered as 
private statutes for the government of the corporate 
body." 

Kyd on Corporations, Vol. L, p. 69. 
Angel and Ames on Corporations, sec. no. 

"When a corporation is duly created the law tacitly 
annexes to it the power of making by-laws or private 
statutes for its government and support. This power 
is included in the very act of incorporation; for, as is 
quaintly observed by Blackstone, ^as natural reason 
is given to a natural body for governing of it, so by- 
laws or statutes are a sort of political reason to gov- 
ern the body politic' Though the power to make 
by-laws is unquestionably an incident to the very ex- 
istence of a corporation, it is rarely left to implication, 
but it is usually conferred by the express terms of the 
charter, and where a charter enables a company to 



to Private Business Corporations 159 

make by-laws in certain cases and for certain purposes, 
its power of legislation is limited to the cases and ob- 
jects specified, all others being excluded by implication. 
But when so made they are equally as binding on 
all their members and others acquainted with their 
method of doing business as any public law of the 
State." 

Angel and Ames on Corporations, sec. 325. 

"* * * What may be bad as a 'by-law' as against 
common right, may be good as a contract ; since a man 
may part with a common right voluntarily, of which 
it would be impolitic and unjust to deprive him by a 
by-law passed without his assent, or perhaps knowl- 
edge, by those who might not know, or would not 
consult his individual interests. Hence it will be 
found that a by-law may be void as against strangers, 
or members who do not assent to it, and yet good as a 
contract between members of the corporation who do 
assent to it." 

Ibid. sec. 342. 

"A by-law must not be inconsistent with its charter, 
for this instrument creates it an artificial being, imparts 
to it its power, designates its objects, and usually pre- 
scribes its mode of operation ; it is, in short, the funda- 
mental law of the corporation, and in its terms and 
spirit is a constitution to the petty legislature of the 
body acting by or under it. Hence all by-laws in con- 
travention of it are void. The final test of all by- 
laws,' says Mr. Justice Wilmot, 'is the intention of 



160 Cdrporation Law as Applied 

the Crown in granting the charter, and the apparent 
good of the corporation.' " 

Ibid, sec. 343. 

"The power of making by-laws binding upon all the 
members of the corporation, whether it resides in the 
majority of the body at large or of those present at a 
corporate meeting, or be confided by charter to a select 
class, is in trust for the benefit of the whole, and must 
therefore be exercised with caution." 
Ibid. sec. 347. 

''A private corporation cannot repeal a by-law so 
as to impair rights which have been given and became 
vested by virtue of the by-law ; and this, although the 
power is reserved by the charter to alter, amend or 
repeal its by-laws." 

Citing, Kent vs. Quicksilver Mining Co., 78 N. Y., 
159- 

Must be reasonable. — By-laws are intended merely 
for the protection of the interests of the corporation, 

"and have no effect further than is necesssary to 
effect that purpose." 

Angel and Ames on Corporations, sec. 354. 

"Whether a by-law is reasonable or not is a question 
for the court solely; and evidence to the jury on the 
subject, showing the effect of the law, is held inad- 
missible." 

"To set a by-law aside for unreasonableness there 
should be no equipoise of opinion on the matter, but 



to Private Business Corporations 161 

its unreasonableness should be demonstrably shown." 

Ibid. sec. 357, 
citing among others, 
Commonwealth vs. Worcester, 3 Pick (Mass.), 462. 

Judge Wilde, in delivering the opinion of the court 
in this case, said : 

''It was for the court to decide whether the 'by-law^' 
was reasonable or not." 

"The by-laws of a corporation, made in pursuance 
of their charter, are equally binding on all the mem- 
bers and others acquainted with their method of busi- 
ness 'as any public law of the State.' " 
Cummings vs. Webster, 43 Maine, 192 (a leading and 
much cited case) ; syllabus. 

"The office of the by-law is to regulate the conduct 
and define the duties of the members toward the cor- 
poration and between themselves; so far as its provi- 
sions are in the nature of a contract, the parties thereto 
are the members of the association, as between them- 
selves or the corporation upon one side and the indi- 
vidual members on the other. The right of any third 
party, stranger to the association, to establish a legal 
claim through such a by-law, must depend upon the 
general principles applicable to express contracts, as 
laid down in 

Mellen vs. Whipple, ist Gray (Mass.), 317, 
and the subsequent decisions in 

Field vs. Crawford, 6th Gray (Mass.), 116, and 

Dow vs. Clark, 7th Gray (Mass.), 198. 

No action can be maintained by such third party unless 



162 Corporation Law as Apphed 

he can bring his case within some of the recognized 
exceptions to that general rule." 

Chief Justice Green, in State vs. Overton, 24 N. J. L. 
Reps., 435, 440, said: 

"The validity of a by-law of a corporation is purely 
a question of law. Whether the by-law be in conflict 
with the law or with the charter of the company or 
be in a legal sense unreasonable, is a question for the 
court and not for the jury." 
Citing, Commonwealth vs. Worcester, 3 Pick (Mass.), 

462. Angel and Ames on Corporations, sec. 357. In 

The Northwest Electric Co. vs. Walsh, xxix. Cana- 
dian Supreme Court Rep., p. 33, 
the opinion of the majority of the court was by Sedg- 
wick, J. 

The learned justice said: 

" * * * And in the third place the by-laws and 
resolutions were bad upon the general common-law 
principle that a by-law must not be unreasonable or 
work unequally toward members of any class affected 
by it. * ^ * This clear, manifest and gross favor- 
itism stamps the by-law on its face as invalid." 

See also, Hoblyn vs. Rex, 2 Brown's cases in Par- 
liament (2d Ed.), 329. 

By-laws must conform to charter, constitution and 
statutes. — In 

Am. and Eng. Encyc, etc., 2d Ed., Vol. VII., p. 694, 
subdivision 5, the following appears, viz. : 



to Private Business Corporations 163 

"Every corporation aggregate has the right to enact 
by-laws for the government of the corporate body. 
These by-laws must not be inconsistent with its char- 
ter or the purposes and objects of its creation, and 
they must not be repugnant to the common law or 
the laws of the land, constitutional and statutory." 
Citing, Wells vs. Black, 117 Cal., 154. 
Vercoutere vs. Golden S. L. Co., 116 Cal., 410. 
Burden vs. Burden, 8 App. Div. (N. Y.), 160, 
and other cases. 

"It is essential to the validity of a by-law that it 
should conform to the Constitution of the United States 
and the acts of Congress pursuant thereto, to the con- 
stitution and statutes of the State in which it is located 
and to the common law as it is there acknowledged. 
The Constitution being the supreme law of the land, 
and all enactment contrary to it void, it follows that 
no act of Congress or of a State legislature can give 
power to make unconstitutional laws and regulations. 
Waterman on Corporations, Vol. L, p. 236, sec. 74, etc. 

"* >:< ^ Consequently, corporations have inher- 
ent in them the power to make all such by-laws as are 
requisite for the due management of their affairs and 
for determining the conditions of membership, at com- 
mon law, when a corporation was duly created, there 
was tacitly annexed to it the power of making laws for 
its own government and support. 

^ ^ ^ ^ ^ ^ stc 2^ sic 

"Though they have this general power to make by- 
laws to further the purposes of their incorporation, 



164 



Corporation Law as Applied 



such by-laws must be within their power — in harmony 
not only with the general laws of the State, but must 
be reasonable in their provision, and not in restraint of 
trade, or they will be void in law." 

State vs. Overton, supra. 
5 Cowen (N. Y.), 462; 
Austin vs. The Selectmen of Charlestown, 16 Pick. 

(Mass.), 121; 
Kyd on Corporations, sec. 107, etc. ; 
Potter on the Law of Corporations, Vol. I., p. 114, etc. 
A corporation cannot, even by legislative authority, 
make by-laws to contravene, repeal or in any wise 
change the statutory or common law of the land. 
Ibid (Potter), p. 116. 
"The true test in construction of by-laws in this 
country is the intention of the legislature in granting 
the charter, and the apparent good of the corporation, 
and this construction must be a reasonable one. * * *" 

Ibid. 
See 

Dunham vs. Trustees of Village of Rochester, 5 

Cowen (N. Y.), 462; 
Taylor vs. Griswold, 2 Green (N. J.), 223; 
People ex rel Muir vs. Throop, 12 Wend. (N. Y.), 

183. 

"The great function of by-laws is to regulate, con- 
trol and manage the affairs of the corporation. They 
create a kind of contract between the members on the 
one part and the corporation on the other, generally 



to Private Business Corporations 165 

directed to the conduct, and to define the duties of the 
officers and members of the corporation between them- 
selves. They are not intended to interfere with the 
rights and privileges of third parties or strangers, nor 
could they be made binding on them. They are bind- 
ing as rules in the transfer of stock; to secure a lien 
upon the holder for his indebtedness to the corpora- 
tion, to which any purchaser must take it subject; but 
to effect these objects the by-law must be entered or 
registered on the books of the corporation." 

Ibid. (Potter on the Law of Corporations), p. 120. 

Generally, by-laws are only binding upon its own 
members and officers. 

'These the by-laws obligate, upon the ground of 
their express or implied consent to them; nor is it an 
objection to a corporator's being bound by a by-law 
that he had no notice of it, or that he was not a mem- 
ber of the corporation at the time the by-law was 
passed." 

Ibid, p. 122. 

Power to make by-laws must be exercised with dis- 
cretion. * * * jj^is power presupposes the right 
to enforce penalties, but such discipline must be rea- 
sonable, in the light of each special state of circum- 
stances. 

Ibid. p. 124. 

Citing, 2 Kyd on Corporations, sec 156. 
Wilcock on Corporations, sec. 368. 
Paxton vs. Sweet, i Green (N. J.), 196. 



166 Corporation Law as Applied 

Right to make by-laws an inherent power. — A 

much cited English case, 

Norris vs. Staps, i Hobert, 211 (Boston Ed., 1829, p. 

369), Hobert, J., 
contains the following : 

"Corporations have power to make reasonable by- 
laws without an express grant of such power. * * * 

"Now I am of the opinion that though power to 
make laws is given by special clause in all corpora- 
tions, yet it is needless; for I hold it to be included 
by law, in the very act of incorporating, as is also the 
power to sue, to purchase and the like. 

"It is implied in the charter of every private corpo- 
ration that the majority shall have power to make rea- 
sonable rules, regulations or by-laws for the govern- 
ment of the company, and the validity of such by-laws 
depends upon the implied agreement of all the share- 
holders * * * and therefore any by-law properly 
enacted by a majority is as binding upon the members 
of the corporation as a provision contained in the char- 
ter itself. 

(See, Morawetz, sec. 491.) 

"* * * such power, express or implied, is limited 
to such by-laws as are in harmony with the charter 
of the corporation, which is its fundamental law. By- 
laws which are calculated to assist in carrying into 
effect the purposes of the corporation are valid; but 
every by-law which is contrary to the charter, either in 



to Private Business Corporations 167 

its special provisions or its main purposes, is unauthor- 
ized and void." 

(See, Morawetz, 494.) 

The power to make by-laws is an incident to cor- 
porations. 

Spelling on Private Corporations, Vol. I., sec. 396, 
p. 431. 

Reference to decisions discussing subject broadly. — 
Extent and power of corporations to make and alter 
by-laws, etc., etc., is exhaustively discussed in 
Kent vs. Quicksilver, 78 N. Y., 159; 
Parish vs. N. Y. Produce Exchange, 60 App. Div. 
(N. Y.), 16-17. 

The opinion in the last-named case is by O'Brien, J., 
(Van Brunt, P. J., and Ingraham and McLaughlin, 
J. J., concurred) : Affirmed in Court of Appeals, 169 
N. Y., 34 — a leading case and high authority. 

See also 

MacNaughton vs. Osgood, 41 Hun. (N. Y.), 109. 

At the close of the opinion Landon, J, says : 

"There is a plain distinction between a case in which 
the corporation may, at its own option, avoid such a 
contract and a case in which the corporation, from the 
fact that it is despoiled and in the hands of the spoilers, 
ought to be adjudged to avoid it." 

Rule as to judicial interference stated. — See opin- 
ion of Edwards, J., in 

Burden vs. Burden, 8th App. Div. (N. Y.), 160, 174, 
as to this subject in general. 



168 Corporation Law as Applied 

The unanimous opinion of the court (Burden vs. 
Burden) is in part: 

"Whatever may have been the common-law doctrine 
in respect to the courts over by-laws enacted by cor- 
porations as one of their incidental powers, I cannot 
conceive how, under this statute, the court can pursue 
its investigation further than to inquire whether it is 
^inconsistent with the laws of this State.' The question 
of the wisdom or expediency of a by-law is quite for- 
eign to a proper judicial inquiry. The law has wisely 
left that question to the better judgment of the trus- 
tees. A motion was made at a special term held by 
Mr. Justice Peckham for a preliminary injunction re- 
straining the defendants from acting under By-law 
No. II, as adopted November 21, 1884, which was 
subsequently rescinded, and of which the one in Feb- 
ruary 2y, 1885, is conceded to be substantially a re- 
enactment. The motion was denied and the learned 
judge in his opinion says : The by-law may perhaps 
be no more than the due exercise of the power of in- 
ternal administration, and if so it rests necessarily 
with the majority of the shareholders, and so long as 
they act with good faith and do not go beyond the 
capacities of the corporation, as fixed by its charter, 
the minority must submit; the courts do not interfere 
unless the corporation, or a majority, may be about to 
do some act outside of the scope of its authority or in 
disobedience to its charter.' " 

But it must not be lost track of that it has time out 



to Private Business Corporations 169 

of mind been held that the majority must not make 
unjust or oppressive or unreasonable by-laws. 

((:^ jij sfs 'pj^g doctrine of a by-law being unreason- 
able, * * * when an attempt has been made to en- 
force it against a third person, has no application to 
a question of delegation of authority under the statute, 
and I think no case can be "found where a delegation of 
power has been held to be invalid because it was 
deemed to be unreasonable." 

Ibid. 

The power of the court to determine whether a by- 
law is unreasonable or void, was upheld (somewhat in 
conflict with Burden vs. Burden, supra), in 
Matthews et al. vs. Associated Press, 136 N. Y., 333 

(1893)- 

In this case Mr. Justice Peckham, who is quoted in 
Burden vs. Burden, supra^ explains his views and ex- 
tends their application as follows : 

''If the by-law be unreasonable or oppressive, or if 
it tend improperly to restrain trade and thereby create 
a monopoly, or if it be an unlawful interference with a 
member's right to contract, or if it restrict the liberty 
of the press, in any or all of these cases the by-law 
would be beyond the power of the company; to adopt 
or pass it would be illegal. In this case the test was 
made as to its illegality and it was found by the court 
that it was not.'* 

In this judgment the whole bench concurred. Thus 
the highest tribunal of New York has unanimously 



170 Corporation Law as Applied 

sustained the proposition that to be valid, by-laws 
must not be "unreasonable or oppressive," and that 
it is the function of the court to determine such fact; 
furthermore, that the consistency of a by-law, when 
compared with the charter, is not the only test which 
the court will apply in determining the validity of the 
former. 

The power of the court to determine as to the valid- 
ity of by-laws is again recognized in 
Monroe Dairy Ass'n vs. Webb (1899), 57 N. Y. 

Supp., 572 ; 40 App. Div., 49. 
An unanimous decision, opinion by Cullen, J. 

By-laws must be reasonable. 
Dunham vs. Trustees, etc., of Rochester, 5 Co wen 
(N.Y.),462. 

Only enacted in home State of corporation. 
Mitchell vs. Vermont Copper M. Co., 47 How. 
(N. Y.), 218. Affirmed, 67 N. Y., 280. 

See 
Abbott's New Encyc. Dig., Vol. IV., p. 45, etc. 

"A corporation has the power by implication, even 
when not conferred in express terms, to make such by- 
laws as may be reasonably necessary or proper for the 
purpose of prescribing rules for its government and 
regulating the conduct and defining the duties of its 
members and to alter and amend or repeal the same. 
But the power is subject to the following limitations : 

First. — The by-laws must be reasonable, and not be 
contrary to law. 



to Private Business Corporations 171 

Second. — They must not be inccnsistent with the 
charter, the enabling act or the articles of association. 

Third. — They must not deprive a member of his 
vested right, nor impair the obligations of his contract 
membership. 

Fourth. — The power must be exercised by the au- 
thority and in the mode prescribed by the charter of 
the corporation or the general law." 
Clark and Marshall on Private Corporations, 5th Edi- 
tion, 3d Vol. p. 1938, sec. 636. 

"A by-law may be good in part and void for the 
rest." 
Rogers vs. Jones, etc., etc., i Wendell (N. Y.), 238. 

"* * * The right to pass the by-law in question 
is not conferred by statute. =^ * * But it is said 
that the by-law of a town or corporation is void if the 
legislatures have regulated the subject by law. If the 
legislatures have passed a law regulating certain things 
in a city, I apprehend the corporators are not thereby 
restricted from making further regulations." 

Ibid. 

The case of 
Thomas vs. Musical Mutual Protective Ass'n, 2 N. Y. 

Supp., 195, supra. 
lays down the general rule that by-laws which are 
arbitrary and contrary to the provisions of the cor- 
porate charter are void. See also the dissenting opin- 
ion of Mr. Justice Daniels, who held that the standard 
to which the by-law must be brought is, — whether or 



172 Corporation Law as Applied 

not it does in fact conflict with the statutes of the 
State. 

Notwithstanding the disagreement of learned judges, 
the first stated measure of the vaHdity of a by-law 
would appear to be plainly founded on reason and the 
one which should prevail. 

Effect of by-laws. — For the effect of by-laws see 
Knox vs. Eden Musee Am. Co., 25 N. Y. Supp., 168; 

148 N. Y., 441. 
This is the leading authority in New York. 

Additional authorities as to validity and judicial in- 
terference. — In 

Village of Buffalo vs. Webster, loth Wendell, 100, 
Chief Justice Savage said : 

*The trustees are authorized to make such pruden- 
tial by-laws as they may deem proper, relative to pub- 
lic markets, etc, etc., * * * providing they are 
not inconsistent with the laws of the State or United 
States. * * * The only question in the case is, 
whether the by-law is valid. At common law corpora- 
tions have power to make by-laws for the common 
benefit. They must not be in restraint of trade, nor 
impose a burden without an apparent benefit. If it 
appears to the court to be reasonable, it is sufficient, 
though it be not averred in the pleading to be so. 
* * * But general restraints are bad." , 

The right to make and establish by-laws, rules and 
regulations concerning admission or expulsion of 



to Private Business Corporations 173 

members, although in general terms, is not an arbi- 
trary unlimited power. See 
The People ex rel. Gray vs. Medical Soc. Ass'n Co., 

24 Barb. (N. Y.), 570, 572, 
and the opinion of Marvin, J. (Sp. T., 1857) : 

"When a corporation is duly created the law tacitly 
annexes to it the power to make by-laws or private 
statutes for its government and support, so that the 
corporation in this case would have had the power to 
make by-laws had the statute been silent on the sub- 
ject; it is usual to confer the power by the charter or 
law authorizing the corporation. If the power is 
expressly conferred in general terms, it is construed as 
an authority conferred for the purpose of enabling the 
corporation to accomplish the objects of its creation, 
and the power in its exercise is to be limited to such 
objects or purposes." 
(Citing, Angel and Ames on Corporations, sec. 268 ; 2 

Kent, 296. 
Grant on Corporations, sec. 96). 

''A by-law must not be at variance with the general 
law of the land; it must be reasonable and adapted to 
the purposes of the corporation. Kent says these 
corporate powers of legislation must be exercised rea- 
sonably and in sound discretion and strictly within the 
limits of the charter and in perfect subordination to 
the Constitution and the general law of the land and 
the rights dependent thereon; subject to these limita- 
tions, the power to make by-laws may be sustained and 



174 Corporation Law as Applied 

enforced by just and competent pecuniary penalties." 

Citing, 2 Kent, 296. 

Grant on Corporations, y6. 

King vs. Corporation of New Castle, 7 T. R., 548. 

King vs. Toppenden, 3 East, 186. 

Ibid., 24 Barb., p. 375. 

Nelson, C. J., 
In re Long Island R. R. Co., 19 Wend. (N. Y.), 37, 
said : 

"The corporation possesses the power to make by- 
laws not inconsistent with any existing law, for the 
management of its affairs.'* 

In further consideration of the case the learned Jus- 
tice continued : 

"This is the broadest general power conferred upon 
it, but it is not new, and would have existed as inci- 
dental. When taken as incidental it must be exercised 
in conformity with the general laws of the land, that 
being the rule to regulate the proceedings of artificial 
bodies as well as the conduct of natural persons, inde- 
pendently of express provisions of those charters to 
the contrary. This general law has ascertained the 
rights of persons and of property of the citizen and 
established modes of procedure in case of a violation 
of them, and corporate bodies must conform to them 
in seeking redress the same as individuals. The for- 
mer can no more take the remedy into their own hands 
than can the latter. So strict is this salutary principle 
of subjection in England that even a by-law in pur- 



to Private Business Corporations 175 

suance of an express power in a charter granted by 
the King is void if contrary to the common law." 
Ibid. 40 and 42, and cases cited. 
By-laws contrary to Magna Charta are void ; so with 
by-laws in restraint of trade. 

Ibid. 
A corporation cannot make by-laws and rules which 
affect the rights and interests of third persons. 
Mechanics' and Farmers' Bank vs. Smith, 19 Johnson 
(N. Y.), IIS. 
In the last cited case, Woodwarth, J., said : 
"The power of making rules and regulations is nec- 
essarily incident to a corporation." 

"It is implied in the charter of every private corpo- 
ration formed for the pecuniary benefit of its members, 
that the majority shall have power to make reasonable 
rules and regulations or by-laws for the better govern- 
ment of the company." 
Morawetz on Private Corporations (2d Ed.), Vol. i, 

p. 462, sec 491. 
Citing, Blackstone Commentaries, sees. 475 and 476, 
and numerous cases. 

The validity of by-laws prescribed by the majority 
depends upon the implied agreement of all the share- 
holders in forming the corporation ; therefore, any by- 
law is as binding upon the members of the company 
as a provision contained in the charter, or in a cer- 
tificate under the general law. 

Ibid. 



176 Corporation Law as Applied 

Citing, Cummins vs. Webster, 43 Maine Reps., 192, 

197; 
also refers to 

McDermott vs. The Board of Police, 5th Abb. Prac. 
Rep. (N. Y.),422. 

The Corporation, etc., vs. The Mayor, etc., 5 Cowen 
(N. Y.), 538. 

The term ''by-law" was originally applied to the 
laws and ordinances enacted by public or municipal 
corporations. The difference between a *'by-law" of 
a private company and a law enacted by a municipality 
is wide and obvious. The former is merely a rule 
prescribed by the majority, under authority of the 
other members, for the regulation and management of 
their joint affairs. 

A "by-law" of a municipal corporation is a local 
law, enacted by public officers by virtue of powers 
delegated to them by the State. 

Ibid. (Morawetz, sec. 492.) 

That reliable author continues : 

''* * * The majority have implied authority to 
prescribe any by-law which is reasonable and calcu- 
lated to carry into effect the objects of the corporation 
in pursuance of its charter." 

(See cases cited.) 

"* * * the majority may also make by-laws reg- 
ulating the directors and other agents of the company 
in managing the corporate business." 



to Private Business Corporations 177 

Citing, Savings Bank of Hannibal vs. Hunt, y2 Mo., 
597, Ibid, sec. 597. 

In the foregoing case it was held (syllabus) : 
"That any savings bank may enact a by-law requir- 
ing its cashier to give bond for the faithful perform- 
ance of the duties of his office." 

"Such enactment would be but a reasonable exercise 
of the power conferred by statute on all corporations 
of making by-laws not inconsistent with existing laws 
for the management of their property, the regulation 
of their affairs, etc." 

"A by-law adopted under express authority given 
in charter is of the same binding force as though it 
was enacted by the legislature." 

Citing, The Corporation, etc., vs. The Mayor, etc., 5 
Cowen (N. Y.), 538. 

McDermott vs. The Board of Police, 5 Abb. Prac. 
Rep. (N. Y.),422. 

Kent vs. Quicksilver M. Co., supra. 

"Although the common law annexes to a corpora- 
tion certain incidental rights, among which is the right 
to adopt by-laws as private statutes for its govern- 
ment, yet, when the statute declares expressly that the 
corporation shall have power to make by-laws in cer- 
tain cases and for certain purposes, its power of legis- 
lation is limited to the cases and objects specified." 

Citing, inter alia, State, etc., vs. Mayor of Morristown, 
33 N. J., 57. 



178 Corporation Law as Applied 

In the above (State vs. Mayor), Dupree, J., in deliv- 
ering the opinion of the court, said : 

"The case 

Norris vs. Staps, i Hobert, 210. 
^ * * well held that a special clause authorizing 
such an organization to make by-laws did not add any- 
thing to its implied powers, and that its by-laws were 
subject to the general law of the realm as subordinate 
to it. 

''A special grant of power to a municipal corpora- 
tion by the legislature is an entirely different thing; 
such a grant is a delegation of authority to legislate by 
ordinance on the enumerated subjects and does not 
add to the power incident to creation of a corporation. 

'Tn the absence of law, or immemorial custom to the 
contrary, the power to make by-laws belongs to the 
members of the corporation (i. e., stockholders)." 
Waterman on Corporations, Vol. I., sec. y^, p. 233 

et seq. 
"^^ * * power to adopt by-laws implies power to 
repeal." 

Ibid. 

"Where charter gives power to make same in cer- 
tain form and particular manner, power must be 
strictly followed. * * * Where a right or a remedy 
are privileged by some law, the law must pursue the 
remedy provided by it. * * * One who voluntarily 
becomes a member of a corporate body cannot object 



to Private Business Corporations 179 

that the corporation had no power to make the by- 
laws." 

Ibid. 

The subject of ''by-laws" is most exhaustively 
treated by Mr. Thompson in his Commentaries on the 
Law of Corporations; see Vol. I., Chap. XVIII. , of 
that work. 

. By-laws of corporations are interpreted according to 
the same principles which govern in the interpretation 
of statutes. 

Thompson's Commentaries, Vol. I., sec. 948. 

'Tt is said that the term 'by-laws' has a peculiar and 
limited signification, and that it is used to designate 
'the orders and regulations which a corporation, as 
one of its legal incidents, has a power to make and 
which is usually exercised to regulate its own actions 
and concerns and the rights and duties of the members 
among themselves.' " 

Thompson, Vol. I., sec. 935, 

Citing, Commonwealth vs. Turner, i Cushing(Mass.), 
493; also 

Flint vs. Pierce, 99 Mass., 68. 

Distinction between by-laws and regulations. — By- 
laws are distinguished from regulations in that one is 
special, the other general. 

The distinction between by-laws and regulations is : 
By-law binds members only; regulation affects third 



180 Corporation Law as Applied 

persons who deal with the corporation, having notice 
of it. 

Thompson, sec. 942. 

See 

Hadencamp vs. Second Ave. Ry., i Sweeny (N. Y.), 
490. 

Baltimore vs. Wilkmin, 30 Md., 224 (a case in neg- 
ligence). 

Harris vs. Stevens, 31 Vermont, 79. 

By-laws bind corporate members. — By-laws, if in 
conformity with charter or governing statute, are as 
binding upon corporate members as State laws, and are 
believed by some to be as binding upon third persons 
acquainted with the corporation's methods of business. 
Ibid., sec. 939. 

See to the above effect : 

Cummings vs. Webster, 43 Maine, 192. 
Weatherby vs. Medical Society, etc., 76 Ala., 567. 
Kent vs. Quicksilver, etc., 78 N. Y., 159. 
Harington vs. Workingmen's Benev. Ass'n, 70 Ga., 
340. 

Poultry vs. Bachman, 31 Hun. (N. Y.), 49. 

Members of a corporation are charged with a knowl- 
edge of its by-laws and are presumed in law to know 
what they are, i. e., have constructive notice of them. 



to Private Business Corporations 181 

This is a legal presumption, and direct proof is not 
required. 

See 

Thompson, sec. 941. 

In Illinois, in 
Green vs. Board of Trade of Chicago, 174 Ills., 585, 
the subject of by-laws was laid down by Mr. Justice 
Phillips in delivering the opinion of the Court (Octo- 
ber, 1898) : 

One becoming a member of such a corporation or 
association ( a board of trade), and subscribing to 
the by-laws, agrees to submit to its rules and regu- 
lations. 
Citing, Bauer vs. Samson Lodge, etc., 102 Indiana, 

262. 
The Presbyterian Assurance Fund vs. Allen, 106 In- 
diana, 593. 

The by-laws to which such member agrees to sub- 
mit are such as are authorized by the nature of the 
corporation and the laws of the country, and hence 
must not be contrary to the policy of the law or unrea- 
sonable. 

Citing, Layre vs. Louisville, etc., 20 Duval, 143. 
People vs. Throop, supra, (12 Wend. [N. Y.], 183). 

Principle of estoppel applies. — Estoppel acts against 
a stockholder who participated in the adoption of the 
by-laws. 

People ex rel. Wallace vs. Sterling B. C, etc., 82 Ills., 
457- 



182 Corporation Law as Applied 

Rights of third parties not prejudiced. — By-laws 
cannot prejudice rights of third parties without notice. 
SpelHng, sec. 404. 



I 



to Private Business Corporations 183 



CHAPTER XI. 



Stock and Stock-Certificates. 

Varied uses of term. — Legal signification. — Distinction 
between certificate of incorporation and stock cer- 
tificate. — Nature of stock certificate considered. — 
Principle governing right to transfer. — Stock cer- 
tificate is only quasi-negotiable. — Limited negotia- 
bility affects lost or stolen certificates. — General 
remarks. 

Varied uses of term. — Few words in the English 
language have more varied meanings than the term 
"Stock" ; some thirty or more significations are found 
enumerated in Webster's, Worcester's, The Century, 
Standard and other dictionaries. 

Legal signification. — In its legal aspect, it has been 
defined as : 

''Money or property employed as a basis for the 
transaction of business." 

English Law Dictionary, p. 749. 

With this definition before us, we are justified in 
saying that the "Stock" of a corporation represents 
collectively the money, property, privileges — in fine, 
the entire effects and assets of the corporation. 

Other definitions are : 



184 Corporation Law as Applied 

"The amount of money or property subscribed and 
paid in by the shareholders." 

Cyclopedic Law Dictionary, p. 873. 

A right to partake, according to the amount of the 
subscription, of the surplus profits obtained from the 
use and disposal of the capital stock of the company : 
Angel and Ames on Corporations, sec. 557, — cited in 
Bouvier's Law Dictionary, Vol 11. , p. 1039. 

"The capital stock (of a corporation) is that money 
or property which is put into a fund by those who, by 
subscription therefor, become members of the body 
corporate. 

"That fund becomes the property of the aggregate 
body only. A share of the capital stock is the right 
to partake, according to the amount put into the fund, 
of the surplus profits of the corporation; and ultimately* 
on the dissolution of it, of so much of the fund thus 
created as remains unimpaired, and is not liable for 
debts of the corporation. * * * These shares are 
intangible and rest in abstract legal contemplation." 
Burrall vs. Bushwick R. R. Co., 75 N. Y., 211, — cited 
in Bouvier's Law Dictionary, supra. 

"The capital of a company is generally divided into 
shares, so that 'shares' and 'stock' are in one sense 
the same thing. * * *" 

Rapaly and Lawrence's Law Dictionary, p. 1225. 

" 'Stock' was the short name for joint stock ; and 
'joint stock,' in my opinion, is only another name for 
'shares,' because the owner of part of the capital of a 



I 



to Private Business Corporations 185 

company is an owner of a part of the joint stock or an 

owner of a share of the joint stock" ; — 

Per Cairns C, in Norrice vs. Aylmer, 44 L. J., Ch., 

214. Affd. 45L. J., Ch., 614; 
quoted in 

Strand's Judicial Dictionary, p. 1938. 

The stock is ordinarily divided into equal shares 
of a determined value, and apportioned among the 
stockholders in proportion to the amount which they 
have paid in, or for which they are liable. 

"Distinction has been made between the capital 
stock, which is an asset of the corporation, and the 
shares of stock, which are the property of the several 
shareholders." 

Cyclopedic Law Dictionary, p. 873. 
Citing, 34 English and American Reported Cases, 223. 

From the foregoing authorities it is apparent that 
while "stock" represents collectively the entire assets 
of the corporation, it (the stock) may be, and in prac- 
tice usually is, divided into parts or "shares," which 
have distinctive rights, and which entitle the owner 
and holder to participate in the profits or proceeds of 
the corporate property. 

The evidence of such ownership is comprised in a 
writing known as a "certificate" ; but here the paucity 
of terms and the consequent duplication of meanings 
have bred some confusion. 

Distinction between certificate of incorporation and 
stock certificate. — There are two separate and dis- 



186 Corporation Law as Applied 

tinct corporation certificates: One, the "Incorpora- 
tion Certificate," which in effect performs the functions 
of a specially granted charter, as shown before under 
the head of the ''Charter," Chapters VIIL and IX. ; 
and the other, correctly styled the "Stock Certificate." 

Nature of stock certificate considered. — Concern- 
ing the latter, extensive discussion has been had, not 
only in the various treatises on corporations, but also 
in the courts, in much and varied litigation principally 
involving the question whether such certificates, in 
regard to their convertibility, are governed by the 
principles, rules and practice applicable to commercial 
paper. 

From such treatises and decisions it may be deduced 
that : 

I. — The Stock Certificate is a writing under the 
corporate seal, duly executed and authenticated by the 
officers of the corporation, with the date thereof and 
setting forth the number of shares held by the owner, 
the par value of such shares and the total number of 
shares of the corporation. 

2. — The certificates is not the stock itself, but is the 
evidence of the ownership of the number of shares 
therein certified to. The owner and holder of the cer- 
tificate is a stockholder, endowed with the rights, priv- 
ileges, powers, duties and other incidents pertaining to 
the relation. 

3. — The certificate not being the stock itself, but 
merely the evidence of the stockholder's ownership, 



to Private Business Corporations 187 

actual manual possession thereof is not required to 
enforce or sustain his rights; for other evidence of 
equal degree may be adduced to accomplish the same 
object. 

4. — While the stock certificate is not "negotiable 
paper," nor governed by the principles, rules and prac- 
tice applicable thereto, yet the exigencies of business 
and the facilitation of commercial intercourse have de- 
manded that in appropriate cases it be endowed with 
some of the attributes of such "paper." 

In support of the foregoing, and generally concern- 
ing the "Stock Certificate," the following excerpts and 
cases are subjoined. 

"A share of stock is without 'earmarks' and cannot 
be distinguished from other shares of the same corpo- 
ration and issue. The certificate-bearing dates and 
numbers are but evidence of title." 

Hubbeh vs. Drexel, 11 Fed. Rep., 115. 

This leading case was decided in the U. S. Circuit 
Court, E. D., Penna. (1882.) 

It would seem from the above that the ownership of 
shares in the capital stock of a corporation is like the 
rights of tenants-in-common in land — no one of them 
can distinguish as his own the identity of any partic- 
ular part, even down to the utmost limits of the divisi- 
bility of matter. The numbers which are given in 
stock certificates are merely for convenience and do 
not in any wise serve to identify any particular or 
special ownership. 



188 Corporation Law as Applied 

''As soon as the corporation has any property or 
valuable franchise the members become stockholders in 
proportion to their respective interests. The certificate 
or scrip is not a transfer from the corporation, but 
merely evidence of an existing right." 

Burr vs. Wilcox, Ext'r, 22 N. Y., 551. 

The opinions in this case were by Mr. Justice Clark 
and Mr. Justice Selden. All the other Justices con- 
curred. 

Mr. Justice Selden, in his opinion, said, in his verbis: 

'The certificate is simply a written acknowledgment 
by the company of the interest of the subscribers in 
its property and franchises." 

Ibid, p. 555. 

In the Alabama Supreme Court, (1896), Chief Jus- 
tice Brickell has well said : 

"The shares constituting the stock of a corporation 
are now regarded by the common law, whether the 
property owned by the corporation is real or personal, 
as personal property, capable of alienation or succes- 
sion in any of the modes by which that species of prop- 
erty may be transmitted ; strictly speaking they are not 
chattels, but are rather 'choses-in-action,' or, in other 
words, they are merely evidences of property. 

(Citing, Angel and Ames, Cook, and Thompson.) 

"As evidence of ownership — as a muniment to title 
— corporations are accustomed to issue certificates to 
the shareholders. The certificate is but the written 



to Private Business Corporations 189 

acknowledgment by the corporation of the sharehold- 
ers' interest in the corporate property and franchises. 
It operates to transfer nothing from the corporation to 
the shareholder, but merely affords to the latter evi- 
dence of his rights/' 
Citing, Cook, supra. 
Nelson vs. Owen, 113 Alabama, 372. 

"In legal contemplation the certificate was merely 
an additional and convenient evidence of the owner- 
ship of the stock." 

Cincinnati, Union, etc., Ry. Co. vs. Fearn, 28 Indiana, 
502, 508. 

In the California Supreme Court it was held, in sub- 
stance, that where stock certificates were issued to "P" 
and by him assigned to "H," who surrendered them to 
the corporation, which thereupon issued new certifi- 
cates to "H" in his own name, this did not affect the 
identity of the stock. 

Hawley vs. Brumigan, 33 Cal., 394. 

Stock is one thing and certificates are another. 
Ibid, 399. 
See opinion therein by Mr. Justice Sanderson. 

"A certificate of stock has always been deemed 
prima facie evidence of ownership." 

Broadway Bank vs. Mcllrath, 13 N. J., Eq., 29. 

Certificates of corporate stock are technically only 
written evidence of interest in the corporate property. 

Merritt vs. Am. Steel B. Co., 79 Fed. Rep., 228. 

They are simply evidences of indebtedness on the 



190 Corporation Law as Applied 

part of the individuals or corporations who issue them ; 
but in the business world such obligations or securities 
are treated as something more than mere muniments 
of title. They are daily bought and sold like ordinary 
chattels; they may be hypothecated or pledged; they 
have an inherent market value, and, while differing in 
some respects from chattels, they are generally classi- 
fied as personal property." 

Ibid, 235. 

"A certificate of stock is only a convenient voucher." 

Johnson vs. Albany and Susquehanna Ry. Co., 40 
How. (N. Y.), 196. 

"A certificate of stock is, from one point of view, a 
mere muniment of title, like a title-deed. It is not the 
stock itself, but evidence of the ownership of the stock ; 
that is to say, it is a written acknowledgment by the 
corporation of the interest of the stockholder in the 
corporate property and franchises. It operates to 
transfer nothing from the corporation to the stock- 
holder, but merely affords the latter evidence of his 
rights." 

Cook on Corporations (5th Ed., Chicago, 1903), sec. 
13. 
Actual possession of a certificate of stock is not nec- 
essary to complete ownership, nor is it essential to the 
existence of a corporation that any certificates be 
named at all. 

Ibid. 

Citing, Burr vs. Wilcox' Ext'r, 22 N. Y., 551. 



to Private Business Corporations 191 

Chester Glass Co., vs. Dewey, i6 ]vlass., 94, 
Pietch vs. Krause, 93 N. W. Rep., 9. 

Upon this subject, in 
Clark and ^Marshall on Private Corporations (St. Paul, 

1901), sec. 378, 
it is said in substance that it is usual for a corporation 
having a capital stock divided into shares to issue to 
its stockholders a certificate of stock, or stock certifi- 
cates, showing that the person named therein is the 
owner of the number of shares therein specified ; ^ ^ ^ 
that the certificate is not the stock, but mere evidence 
of the stockholder's ownership. 

"A certificate is merely the paper representative of 
an incorporeal right, and it stands on a similar footing 
to that of other muniments of title. It is not in it- 
self property, but is merely the symbol or paper evi- 
dence of property; hence the proprietary right may 
exist without the certificate." 
Thompson on Corporations, Vol. II., p. 1730, sec. 

2348, 
and see cases cited. 

"The shares of stock cannot be issued and delivered 
as a physical fact. AMiat the corporation can do, and 
what under some circumstances it may be compelled 
to do, is to issue and deliver written proof of the ex- 
istence of shares and of the ownership of them, usually 
called 'Stock Certificates.' " 

Waterman on the Law of Corporations, Vol II., p. 84, 
sec. 168. 



192 Corporation Law as Applied 

Vender liable on implied guaranty. — "* * * Stock 
may be transferred without a transfer of the certifi- 
cate, and if the transferer afterward transfers the cer- 
tificate to another party, he is liable to the transferee.'' 
Cook on Corporations, sec. 13. 

"Certificates of stock are negotiable instruments. 
They have sometimes been said to have a 'quasi' nego- 
tiability, but his phraseology throws little light upon 
the real character of the transferability of stock. It 
may be said in general that by the operation of the law 
of estoppel the purchaser of a certificate of stock. In 
good faith and for value, may take it free from any 
claims of previous holders, which would be allowed 
to come in, in the case of a sale of an ordinary chose- 
in-action. * * *" 

Spelling on Private Corporations, sec. 516, etc. 
Citing, Merritt vs. Am., etc., Co., 79 Fed. Rep., 228. 

And here may be noted the rule of law regarding 
stock claimed by a transferee, founded upon possession 
of the certificate. In such instances, where a wrong- 
ful possession of the certificate is alleged, the question 
of estoppel arises, as well as the further question how 
far the original and true owner of the certificate had 
contributed to the wrong done, either overtly or by 
sufferance. In cases of this description the well-known 
principle laid down in 

Hannah vs. Hannah, 68 N. Y., 610, 
applies. This old and highly equitable rule may be 
stated, in substance, as follows : When a loss must 
be sustained by either of two parties, the one who 



to Private Business Corporations I 193 

has made the injury possible should be the first to 
suffer. This is ably expressed in the case of 

Knox vs. Eden Musee, 148 N. Y., 441, 
where the learned Chief Justice Andrews quoted ap- 
provingly the familiar statement of Lord Holt in 
Hern vs. Nichols, i Salk, 289 : 

"For seeing somebody must be a loser by this deceit, 
it is more reason that he that employs and put a trust 
and confidence in the deceiver should be a loser, than 
a stranger." At an earlier place in the decision, the 
following appears : 

"The principles applicable to negotiable paper have 
been extended to embrace public debentures payable 
to bearer, and bonds of corporations and some of 
the incidents of negotiability have either by custom 
or statute been applied to instruments not strictly 
negotiable. Certificates of stock in business corpo- 
rations are embraced in the class last mentioned. 
They are not negotiable in form, they represent no 
debt and are not securities for money. But the 
courts of this country, in view of the extensive 
dealings in certificates of shares in corporate enter- 
prises, and the interest, both of the public and the cor- 
poration which issues them, in making them readily 
transferable and convertible have given to them some 
of the elements of negotiability. The owner of shares 
may transfer his title by delivery of the certificate with 
the blank power of attorney endorsed thereon signed 
by the owner of the shares named in the certificate. 
Such a delivery transfers the legal title to the shares 



194 Corporation Law as Applied 

as between the parties to the transfer, and not a mere 
equitable right"; 

See, McNeil vs. Tenth National Bank, 46 N. Y., 325, 
cited therein. 

Chief Justice Sherwood, of Pennsylvania, in deliv- 
ering the opinion of the court in an important case, 
said: 

"Shares of stock in a corporation are choses in ac- 
tion, giving a right to dividends and an interest in the 
capital. The certificate is the evidence of such owner- 
ship and there can be no doubt that if the certificate 
is forged, or the holder is not such bona fide, so that 
he has no claim on the corporation, the vender would 
be liable to his vendee on the implied warranty of title. 
His possession of the certificate would be as to his 
vendee possession of the stock, just as possession of 
a bond or note is possession of a debt which they repre- 
sent." 

People's Bank vs. Krutz, 99 Penn. St., 34. 

Principle governing right to transfer. — "By general 
mercantile usage, shares in a corporation are assign- 
able by indorsements and delivery of the certificates 
issued to the owner as evidence of his rights." 

Morawetz on Corporations, sees. 185, 186. 

In the celebrated case in the United States Supreme 
Court (1870), 

Bank vs. Lanier, 11 Wallace (U. S.), 369, 
the opinion of the court was delivered by Mr. Justice 
David Davis, one of our most learned and able jurists, 



to Private Business Corporations 195 

whose opinions have been regarded with favor by both 
bench and bar. In this opinion, p. 377, it was said : 

'** * * Obviously, whatever contributes to make 
the shares of the stock a safe mode of investment and 
easily convertible tends to enhance their value. It is 
no less the interest of the shareholders than the public 
that the certificate representing his stock should be in 
a form to secure public confidence, for without this he 
could not negotiate it to any advantage. It is in obe- 
dience to this requirement that stock certificates of all 
kinds have been constructed in a way to invite the 
confidence of business men, so that they have become 
the basis of commercial transactions in all the large 
cities of the country and are sold in the open market 
as other securities; although neither in form or char- 
acter negotiable paper, they approximate to it as nearly 
as practicable. * * * ]vJq better form could be 
adopted to assure the purchaser that he can buy with 
safety. He is told under the seal of the corporation 
that the shareholder is entitled to so much stock, which 
can be transferred on the book of the corporation, in 
person or by attorney, when the certificates are surren- 
dered, but not otherwise. This is a notification to all 
persons interested to know that whoever in good faith 
buys the stock and produces to the corporation the 
certificates, regularly assigned, with power to trans- 
fer, is entitled to have the stock transferred to him. 
And the notifi.cation goes further, for it assures the 
holder that the corporation will not transfer the stock 
to anyone not in possession of the certificate." 
Bank vs. Lanier, supra. 



196 Corporation Law as Applied 

Stock certificate is only quasi-negotiable. — "Certifi- 
cates of stock in business corporations have been given 
most of the elements of negotiability. A transferee 
in good faith and for value holds his title free from 
latent equities between prior parties in the line of 
transmission. 



"Certificates of stock in a business corporation, in- 
dorsed in blank, do not possess the quality of complete 
negotiability accorded to commercial paper, to the ex- 
tent of making a transfer to a purchaser for value 
equivalent to actual title — although there was no 
agency in the transferor and the certificate had been 
lost without the fault of the true owner, or had been 
obtained by theft and robbery." 

Syllabus in — Knox vs. Eden Musee, 148 N. Y., 441. 

a * * * upon principle and authority it is mani- 
fest the certificate has not in it the elements and char- 
acteristics of negotiable or commercial paper. It is not 
an evidence or debt, nor an order for the payment of 
money ; it is but a muniment of title. While this is true, 
a species of negotiability, or to use the phrase sufficiently 
for all practical purposes, a ''gwa^i-negotiability,' attaches 
to it, adding to its value, and if the owner in any form 
clothes another with the apparent title and the conse- 
quent power of disposition, inducing third persons to 
deal with him as owner, such persons are entitled to 
full protection — to the same measure of protection 



to Private Business Corporations 197 

extended to the bona fide taker of negotiable or com- 
mercial paper.'' 

Nelson vs. Owen, etc., 113 Alabama, 372, 379. 

"The stock certificates * * * were the mere evi- 
dence of the ownership of shares in the corporation. 

"It is well settled that such certificates are not nego- 
tiable. 

"The assignee takes them subject to all the equities 
which existed against the assignor. They are choses 
in action." 

Young vs. South Tredegar Iron Co., 85 Tenn., 189; 
4 Am. St. Rep., 752 ; 2 S. W., 202. 
Opinion by Mr. Justice Lurton. 
Citing, Cormick vs. Richards, 3 Lea, i. 

Limited negotiability affects lost or stolen certifi- 
cates. — "The holder of stolen certificate can claim no 
equities.'' 

Spelling on Private Corporations, sec. 516. 

The rule concerning lost or stolen paper does not 
apply to certificates of stock; for while it seems that 
such certificates have been from force of circumstances 
and of necessity clothed with some of the attributes 
pertaining to commercial paper, the certificate differs 
from the commercial paper in the above regard. 
Cook on Corporations, sec. 358. 

In 
Spelling on Corporations (New York, 1892), Vol. L, 

p. 339, sec. 312, 
it is said that 



198 Corporatilon Law as Appied 

'The certificate only constitutes proof of property 
which may exist without it. * * * One of the clearest 
distinctions between certificates of stock and promis- 
sory notes, with regard to negotiability, is the fact that 
when the latter have been indorsed in blank and one 
who has stolen or found them delivers them to a pur- 
chaser without notice of the theft, the latter acquires a 
title as against the payer or prior endorser; but the 
transfer of shares rests essentially and exclusively on 
contract, and a purchaser from a thief or finder of a 
certificate endorsed in blank acquires no title, nor does 
a subsequent purchaser from him, either as against the 
owner or the corporation." 

Ibid, p. 575, sec. 521, Citing, Anderson vs. Nichols, 
28 N. Y., 600, 

Barstow vs. Savage Mining Co., 64 Cal., 388. 
Biddell vs. Bayard, 13 Pa. St., 150. 

"The authorities are clear in support of the view 
that a certificate of shares of stock in the ordinary 
form is not negotiable paper and that a purchaser of 
such certificate, although endorsed in blank by the 
owner, where no question arises under the registration 
laws, obtains no better title to the stock than his vendor 
had, in the absence of all negligence on the part of the 
owner, or his authority to make the sale." 
Ibid.— Citing, Mechanics' Bank vs. N. Y. & N. H. R. 

Co., 13 N. Y., 599. 
Shaw vs. Spencer, 100 Mass., 382. 
Barstow vs. Savage Mining Co., supra, 
and other cases. 



to Private Business Corporations 199 

See opinion of Mr. Justice Somerville of the Su- 
preme Court of Alabama in 

East Birmingham Land Co, vs. Dennis, supra. 

Regarding the imperative need which alone can 
compel a relaxation of the rules of law, in order to 
conform with commercial usages, customs and necessi- 
ties, it has been said with good authority : 

'That no usage is good which conflicts with an es- 
tablished principle of law, any more than one which 
contravenes or nullifies the express stipulation of a 
contract." 

East Birmingham Land Co. vs. Dennis, 85 Ala., 565 
(1889).— Citing, ''Stock and Stockholders," 26 
Am. and Eng. Encyc, 26. Ed., 830, and cases 
cited therein. 
In delivering the unanimous opinion of the court in 
Knox vs. Eden Musee, 148 N. Y., 441, 
Chief Judge Andrews said, in substance : That right- 
ful ownership in a lost or stolen certificate might be 
asserted even against bona fide purchasers; and again, 
that the "rigid" rule of the common law of England 
prohibiting the assignment of choses-in-action was, at 
an early day, relaxed to some extent to conform to 
the usages of merchants and the necessities of com- 
merce. This case, on account of its importance as an 
authority, has been already quoted herein, and should 
be read with care. 

It thus appears that such relaxation of the common 
law rule began at an "early day" and has continued 



200 Corporation Law as Applied 

since. The above authority recognizes not only the 
power, but also the duty of the courts so to interpret 
existing laws and so to administer them as to meet 
the requirements of business exigencies and commer- 
cial intercourse — so long as they are in substantial 
accordance with the rules and principles of equity and 
the furtherance of justice. And, furthermore, it is 
clear that this relaxation of the common-law rule 
allowing stock certificates to a greater, or lesser ex- 
tent to be clothed with the elements or attributes of 
negotiable paper was not intended to establish the 
rule that they were the stock itself, or that the rules 
regarding negotiable paper were, in general, applicable 
to them. The rule of the common law remains what 
it was and these certificates remain evidences of own- 
ership, i. e., mere vouchers. 

General remarks. — It is "passing strange," after all 
that has been said upon the subject of "stock certifi- 
cates," their negotiability, and how far the principles 
and rules governing commercial paper apply thereto, 
that a simple statement of the situation nowhere ap- 
pears. Perhaps the following will supply the desid- 
eratum: 

The stock certificate represents the interest of the 
owner of certain shares in the corporation. This in- 
terest is incapable of manual delivery, even as choses- 
in-action cannot be physically handled or transferred. 
The stock certificate might be likened unto the key to 
a house which in certain instances is delivered as rep- 
resenting the house itself. So, in the case of the trans- 



to Private Business Corporations 201 

fer of stock, the buyer pays to the seller the purchase 
price or other consideration, receiving in token of the 
transaction the "certificate," which is a symbolic deliv- 
ery of the interest of the seller. 

The entry of such transfers in the books of the cor- 
poration being a mere matter of manege and conve- 
nience, the corporation has, of right, the power to 
prescribe certain reasonable and proper rules and reg- 
ulations in regard thereto. He who becomes the owner 
of its stock is presumed to know this reserved right; 
and he tacitly agrees to the same. 

The benefits of this proper and wholesome view have 
been shown in the able opinion of Mr. Justice Davis, 
in 

Bank vs. Lanier, ii Wall. (U. S.), 369, supra. 

The whole matter concerning the negotiability or 
non-negotiability of stock-certificates may be thus 
summed up, viz. : 

First. — The stock certificate is not per se a negotia- 
ble instrument ; nor is it governed, strictly speaking, by 
the principles, rules and practice pertaining to such 
instruments — it is a mere evidence of ownership — 
a voucher. 

Second. — The exigencies of business and the facili- 
tation of commercial intercourse, which in a way con- 
stitute public policy, have, however, caused the courts 
to permit these certificates to be clothed with some of 
the elements and attributes of "negotiable paper." 



202 



Corporation Law as Applied 



Third.SvLoh certificates are clothed with the dis- 
tinctive features of negotiable paper so far as justice 
and equity require, and no further. 

Fourth. — No general rule being applicable to every 
case, the courts must adjust and apply thereto the rules 
governing negotiable paper, according to the facts and 
circumstances embraced in the particular situation. 



to Private Business Corporations 203 



CHAPTER XII. 
On Change of Capital Stock. 

Importance of subject. — No inherent power to make 
change. — Authority from legislative act must ap- 
pear. — Reasons for rule stated. 

Importance of subject. — Among the questions of 
corporate management which have received a large 
amount of attention in our courts, has been that con- 
cerning the power of a corporation to change the 
amount of its capital stock, whether by increasing or 
decreasing the same. It cannot be attempted, however, 
in this work to give more than a brief outline of what 
has been authoritatively said on the subject. 

No inherent power to make change. — The consen- 
sus of opinion holds that, of itself, the corporation is 
bound to exist within the limits of the capital-stock 
with which it began its existence. That the capital 
stock of private business corporations is sometimes 
decreased and more often increased, is true; but the 
ability to effect such change is not derived from any 
inherent right which such corporation possesses. Its 
authority must be derived from the Sovereign power 
which is the source of its being. 

Authority from legislative act must appear. — Chief 
Justice Brickell, of Alabama, a high authority, in 



204 Corporation Law as Applied 

Granger's Life and Health Ins. Co. vs. Kampers, 73 

Alabama, 325, has this to say: 

"When a corporation relies upon a grant of power 
from the legislature to do an act, it is as much re- 
stricted to the mode prescribed by the statute for its 
exercise as it is to the particular thing to be done, — - 
(citing. Angel and Ames on Corporations, sec. iii). 
''If in the mode prescribed by the statute the capital 
stock was not increased, the statute would furnish no 
authority for the increase. * * * A controlling purpose, 
as we suppose, in authorizing or in compelling the cre- 
ation of private corporations under the general laws, is 
to secure uniformity and equality of corporate powers, 
functions and privileges; that all corporations of the 
same class, formed for like purposes, should enjoy the 
same franchises and privileges. Unless it was in- 
tended to work a radical change in the nature and 
character of these artificial beings, the mere creations 
of the law, and to subvert the whole theory which had 
prevailed in reference to them, it cannot have been 
contemplated that they should for themselves create 
powers and privileges by declaration or reservation, 
whether the declaration or reservation is expressed in 
the articles of incorporation or in the constitution or 
by-laws ordained by the corporators for their govern- 
ment. Such declarations or reservations would soon 
become more liberal and diverse than was the liberal- 
ity and diversity of the grants of corporate power by 
special legislative enactment — the evil it was intended 
to remove. * * * xhe power must be found in the 



to Private Business Corporations 205 

law from which corporate existence is derived, or 
must have been conferred by a subsequent law, the 
provisions of which were observed in the exercise of 
the power." 

The whole of the foregoing decision, if space per- 
mitted, would be given here, as it contains much valu- 
able matter which will repay careful perusal. 

"Authority to increase the capital stock of a corpo- 
ration may undoubtedly be conferred by a law passed 
subsequent to the charter; but such law should regu- 
larly be accepted by the stockholders. Such assent 
might be inferred by subsequent acquiescence; but in 
some form or other it must be given to render the 
increase valid and binding on them. Changes in the 
purpose and object of an association, or in the extent 
of its constituency or membership, involving the 
amount of its capital stock, are necessarily funda- 
mental in their character and cannot, on general prin- 
ciples, be made without the express or implied consent 
of the members. =5^ * *" 

Railway Co. vs. Allerton, 85 U. S. (18 Wall), 233; 
opinion by Mr. Justice Bradley. 

"And it is well settled that a corporation has no 
implied power to change the amount of its capital as 
prescribed by its charter, and that all attempts to do 
so are void." 

Scoville vs. Thayer, 105 U. S., 143, — Citing, Mechan- 
ics' Bank vs. N. Y. & N. H. R. R., 13 N. Y., 599. 
N. Y. & N. H. R. R. vs. Schuyler, 34 N. Y., 30. 
Ry. Co. vs. Allerton, 18 Wall (85 U. S.), 233. 
Stace & Worths Case, Law Rep., 4 Ch. App., 682, note. 



206 Corporation Law as Applied 

'^oint stock corporations cannot have, apart from 
statutes, a power to vary the amount of their capital.' 

Brice's Uhra Vires, sec. i lo. 

Reasons for rule stated. — In the United States Su- 
preme Court (1873) Mr. Justice Bradley, in delivering 
the opinion of the court, said : 

''The rule that a power not clearly conferred must 
be deemed to be withheld is an admitted canon in the 
interpretation of private charters of incorporations. 

"We are satisfied that the decree must be affirmed 
on the broad ground that a change so organic and 
fundamental as that of increasing the capital stock of 
a stock corporation beyond the limit 'fixed' by the 
charter cannot be made by the directors alone unless 
expressly authorized thereto. The general power to 
perform all corporate acts refers to the ordinary busi- 
ness transactions of the corporation, and does not ex- 
tend to a construction of the body itself or to an en- 
largement of the general stock. A corporation, like 
a partnership, is an association of natural persons who 
contribute a joint capital for a common purpose, and 
although the shares may be assigned to new individ- 
uals in perpetual succession, yet the number of shares 
and amount of capital cannot be increased except in 
the manner expressly authorized by the charter or 
articles of association. Authority to increase the cap- 
ital stock may undoubtedly be conferred by a law 



to Private Business Corporations 207 

passed subsequent to the charter, but such law should 
regularly be accepted by the stockholder. * * * 

"Changes in the purpose and object of an associa- 
tion, or in the extent of its constituency and member- 
ship, involving the amount of its capital stock, are 
necessarily fundamental in their character, and can- 
not, on general principles, be made without the express 
or implied consent of the members." 

"The reason is obvious, — 

"First, as it respects the purpose and object. This 
may be said to be the final cause of the association, for 
the sake of which it was brought into existence. To 
change this without the consent of the associates would 
be to commit them to an enterprise which they never 
embraced, and would be manifestly unjust. 
(Susquehanna Boom Co. vs. Dubois, 58 Penn. St., 

185.) 

"Secondly, as it respects the constituency, or capital 
and membership. This is the next most important and 
fundamental point in the constitution of a body cor- 
porate. To change it without the consent of the stock- 
holders would be to make them members of an asso- 
ciation in which they never consented to become such. 
It would change the relative influence, control and 
profit of each member. If the directors alone could 
do it they could always perpetuate their own power. 

"Their agency does not extend to such an act, unless 
so expressed in the charter, or subsequent enabling act ; 
and such subsequent act, as before said, would not 



20S Corporation Law as Applied . 

bind the stockholders without their acceptance of it, 
or assent to it, in some form." 
Railway Co. vs. Allerton, 85 U. S. (18 Wall), 233. 

Since the authorities above quoted seem sufficient in 
number and weight to establish the principles included 
in this chapter, we will now turn to the rights and 
powers of stockholders, when assembled and acting 
as a corporative body. 



to Private Business Corporations 209 



CHAPTER XIII. 

Stockholders' Meetings. 

Stockholders* meeting is corporate legislature. — Dis- 
tinctive features of this chapter. — Plan includes 
epitome of treatment by distinguished authors. — 
Nature and requirements of meetings. — Clark and 
Marshall. — Angel and Ames. — Potter. — Cook. — 
Morawetz. — Thompson. — Spelling. — Bouvier. — 
Waterman. — Blackstone. — Kent. — Brice. 

Stockholders' meeting is corporate legislature. — 
Whatever may be done by corporations relates back to 
some lawful meeting of the stockholders. 

It is at such place and time that the aggregated 
members of the corporation become the corporate en- 
tity, equipped and ready for the consummation of its 
business. 

It is true that of the multitude of things done by 
corporations comparatively few are actually performed 
at its meetings; but the primary power and authority 
of directors, officers and agents — though the authori- 
zation may be sometimes remote — will be found to 
have been conferred on them at, and to have its source 
in, such meetings. 



210 Corporation Law as^ Applied 

In fine, it is the only way whereby the power of the 
corporation can primarily be exerted. To extend the 
similitude of the Business Stock Corporation with a 
free government hereinbefore spoken of, it may be 
said that in a republic, the people are the sovereign 
power ; in the people exist all power and authority. Of 
this they delegate to the legislature so much as they 
deem it proper to relinquish for the time. This dele- 
gation is made at duly convened meetings, called elec- 
tions, and it is at such times and places alone that the 
Sovereign People, notwithstanding they are all-pow- 
erful, consent to act in regard to governmental affairs. 
So with stockholders, who, in regard to their relations 
to the corporation, occupy a highly analogous position. 

Stockholders, when regularly assembled, are quali- 
fied to and do part with and delegate to the corporate 
officers the authority with which the latter conduct its 
affairs, and this power is only exercised at such meet- 
ings. The analogy does not cease here, for as in the 
decision of matters political, so here the majority of 
voting power prevails. There are, however, some 
modifications of this rule, which will appear later in 
this chapter. 

Distinctive features of this chapter. — In one partic- 
ular this chapter differs from every other. 

Elsewhere the supply of excellent material contained 
in the writings of each author has ben drawn upon as 
occasion seemed to require. 

In this chapter, however, a different policy has been 
adopted. 



to Private Business Corporations 211 

Plan includes epitome of treatment by distinguished 
authors. 

The supreme importance of treating lucidly and un- 
derstandingly of the fountain-head of corporate energy, 
viz. : ''Stockholders' Meetings," has seemed to offer an 
opportunity to change the general plan in a way that 
will prove of service here. 

As will be seen, the ideas of each distinguished au- 
thor among those selected, will be presented seriatim, 
and at such lengths as the limits of this book permit; 
with the advantage, it is believed that these ideas when 
thus offered fresh from the intellectual mint will prove 
more useful and convincing than when recoined in any 
other form. 

While this course has entailed the addition of some 
further pages to the text, it is confidently believed that 
neither apology nor excuse is required for such ex- 
tension. 

Nature and requirements of meetings. — One of the 
most inalienable rights of stockholders is to attend and 
participate in these meetings, and this right carries 
with it the right of notification, for notice must be 
given, or attempted to be given, to every stockholder. 
In order to make this matter clear it is necessary to 
enumerate the different classes of stockholders' meet- 
ings which exist. They are as follows : Regular or 
Stated, and Special. The Regular or Stated meeting 
is fixed by law or regulation; the Special is called ac- 
cording to forms and methods adopted by the corpora- 



212 



Corporation Law as Applied 



tion. Of the former class the stockholder is supposed 
to know because it is a matter of record ; of the latter, 
he must have special and direct notice. But the stock- 
holder must have notice in some way of all meetings, 
whether of the one class or the other. In most in- 
stances the corporate by-laws provide for these no- 
tices, and if reasonable they are controlling. 

Under the head of "Locus" and ''Domicil," it is 
shown at a later place, that the meeting, unless some 
statutory authority appears to the contrary, must be 
held within the confines of the creating State. 

A large part of the litigation in which the question 
of meetings has come up is in regard to notice, al- 
though the question of the power of the majority has 
also received attention. 

In regard to corporate meetings, the following gen- 
eral rules apply: 

Meeting must be called by authority and in the man- 
ner prescribed by the charter. 

Saving express provisions to the contrary, a meet- 
ing may be called whenever the directors or managers 
deem it necessary. 

Irregularities in calling meetings are waived when 
the objecting stockholder has in any manner estopped 
himself from calling that matter in question. 

Meetings may be compelled by mandamus in proper 
cases. 

Notice of meeting is not necessary unless expressly 



to Private Business Corporations 213 

required, if the time and place is fixed by charter, by- 
laws or usage. 

If not so fixed, each stockholder is entitled to notice. 
And if it be for a special purpose, information of the 
object of the meeting should be included. 

Meetings must ordinarily be held at time and place 
specified by the general or special laws governing, but 
this does not preclude other meetings, when exigencies 
arise. 

Meetings, in general, must be held within the terri- 
torial limits of the corporation, but may be effective 
outside by force of estoppel. 

Meetings must conform to the charter and the stat- 
utes applicable thereto. 

In absence of provisions as to quorum, any number 
of stockholders exceeding one may legislate. This 
matter of "quorum," however, is in practice provided 
for either by charter or statutory enactment. 

In the absence of provisions to the contrary, a meet- 
ing may be adjourned to any other time by a vote of 
a majority. 

Clark and Marshall.— The presumption in case of a 
meeting is that the same was properly held and, in 
short, was competent. 

Clark and Marshall on Corporations, Vol. III., sec. 
644, pp. 1 960- 1 96 1. 

Action by stockholders as individuals, although em- 
bodied in a written instrument signed by a majority, 
is not corporate action, and is therefore void. 
Ibid, sec. 645. 



214 Corporation Law as Applied 

Powers of stockholders are limited and confined to 
their actions as members at a duly called, etc., meet- 
ing; outside of that they are nil. 

Ibid. 

Stockholders acting as above may be estopped from 
denying responsibility; otherwise, business transacted 
at an irregular meeting is impotent to bind the corpo- 
ration. 

Ibid. 

In general, the same rule which obtains in all mat- 
ters affecting the performance of statutory provisions, 
to wit, careful adherence to the statutes in letter and 
form as well as in spirit attaches to all corporate ac- 
tions. In other words, whatever in regard to corporate 
matters is to be done at its meetings, including the call- 
ing and institution of the meeting, must be in strict 
adherence to the laws obtaining and in force at that 
time. 

Ibid. 

The acts of a meeting irregularly called or lacking 
some one or more of the requirements of law may be 
ratified and made effective by subsequent acts of the 
stockholders. 

Ibid. 

A substantial compliance with the law is only re- 
quired. In absence of proof to contrary a meeting is 
deemed to be properly and lawfully held. The remedy 
to aggrieved stockholders in all matters pertaining to 
meetings is through the courts by mandamus. 
Vide Bill of Equity, etc. — Ibid. 



to Private Business Corporations 215 

The fixing of time and place to be effective must 
be by — 

1. Charter; 

2. Statute; 

3. Notice. 

Notice of the hour is imperative. This appeals to 
reason and common-sense; for who would care to 
await the holding of a meeting for twenty- four hours? 

Fraud in regard to meetings of stockholders is as 
malignant and subversive here as elsewhere, and the 
fraudulent concealment of notice of a meeting from a 
stockholder is good and meritorious ground for set- 
ting aside the "doings" at such meeting. 

It is not in a strict sense essential that the notice 
should be in any prescribed form. The gist of the 
whole thing is that the stockholder should be creditably 
informed how, when and where a meeting of the stock- 
holders is to be held ; and what, if any, particular thing 
out of the ordinary would or might come up. And 
the object of this rule is to afford the share-owner an 
ample opportunity to protect himself and his interests. 
To this every stockholder is entitled, and if he does 
not receive it his interests are not involved, or rather 
a court of equity will not permit them to be involved 
or affected by any action taken thereat. 

The above seems to be an epitome of what the stock- 
holders' rights are in the premises. 

The various rules and provisions usually contained 
in by-laws as to "special" business to be transacted, 



216 Corporation Law as Applied 

exist for the purpose of enabling the stockholder to 
protect his interest. 

Ibid. 

So far as the ordinary or current and usual affairs 
of the corporate body are concerned, the stockholder 
may be willing to rest satisfied with anything the board 
of directors may do ; at the same time, there are many 
things out of the ordinary which he might wish and 
be able to successfully oppose. In this right to notice 
the stockholder is fully sustained by the courts. 

Previous notice of meeting may be waived — or not 
having been given and received or waived, may be 
rendered of no importance by the subsequent notifica- 
tion of the stockholder entitled to notice and not hav- 
ing received the same. 

Ibid, sec. 647. 

Or if a stockholder has not received any legal notice, 
yet hears of the meeting and is present at it, he is in 
general estopped from disputing its propriety or leg- 
islative ability. 

Ibid. 

Yet there may be cases where a stockholder not law- 
fully notified, yet present, may successfully oppose the 
action of such illegally summoned meeting. But in 
such case equity would require the objecting stock- 
holder to show how he had been damnified by failure 
of the proper authorities to give the required notice, 
etc., etc. In the absence of such proof it might be a 
case of damnum absque injuria. 



to Private Business Corporations 217 

As has been said, meetings held in the usual manner, 
etc., are deemed or presumed to have been properly 
and legitimately called. 

Ibid. 

Meetings to be effective must be in the confines of 
the creating State. The corporation cannot act beyond 
these confines. 

Ibid, sec. 648 (J). 

And herein the books show a distinction between 
the act of the corporate body itself and the acts of its 
duly authorized and empowered agents and servants; 
it being laid down as a rule governing the situation — 

(a) That a corporation cannot conduct its affairs 
without the confines of its home State without statu- 
tory permission. 

{h) But it may within such confines authorize and 
empower its agents and servants to act without such 
confines. See Ibid, sec. 648(6?). 

Meetings of stockholders should 

First. — Be in accordance with the by-laws, which 
should in turn be consistent with the charter. 

Second. — In accordance with the laws of the sov- 
ereignty or State creating the corporation. 
Third. — In the absence of special law or regulations, 
the requisites of a proper and valid and effective meet- 
ing are : 

(a) It should be conducted by the proper persons. 

( & ) It should proceed with fairness and good faith 
to all entitled to participate, and in such a way as to 



218 Corporation Law as Applied 

enable them to express their opinion and vote effect- 
ively {pro tanto) on all questions submitted. 
Ibid, sec. 6^g{h), 

A meeting improperly and fraudulently held cannot 
effectively act, and a court of equity will, on the appli- 
cation of an aggrieved interested person, intervene. 

Ibid. 

Meetings are of two kinds, viz. : General or Stated, 
and Specially Called. 

At General or Stated Meetings all regular business 
can be transacted; but no special or extraordinary 
business can be done thereat, excepting such as is con- 
tained in the notice duly and lawfully given to the 
stockholders. 

At a Special Meeting no business whatever can be 
lawfully transacted other than that of which the stock- 
holders have had due and lawful notice. 

Ibid. 

The by-laws usually provide as to all these meetings, 
both General and Special, and describe in detail what 
may and may not be done thereat. 

A stockholder may change his vote at any time be- 
fore the result is announced. 

Ibid, sec. 649 (c). — Citing, State ex rel Lawrence vs. 
McCann, 64 Mo. App. 225. 

After inspectors have received unchallenged vote, 
they cannot reject it as illegal. 
Ibid, — Citing Hartt vs. Harvey, 32 Barb. (N. Y.), 55. 

Individuals may hold their positions notwithstand- 



to Private Business Corporations 219 

ing frauds, etc., which did not effect their election, 
although connected therewith to a minor extent. 
State ex rel Redd vs. Smith, 15 Oregon, 98. 

The method of voting is generally prescribed by 
charter or by-laws. If so, such provisions must be 
strictly followed. 

Voting, unless provided for as above, may be viva 
voce, by ballot, or by the uplifted hand; and in any 
event if such manner of voting is used, and it is not 
objected to by anyone, it is valid. 

Ballots are not required to be of any peculiar form, 
unless it is so provided as above by the by-laws, etc. ; 
they must, however, be such as to clearly show the 
intention of the voter. 

Voting after prescribed hours is valid; semhle, if 
polls are opened to let in a tardy voter; but after the 
count and announcement no ballot or vote will be con- 
sidered. 

Ibid (Clark and Marshall), sec. 649. 

Presumptions of law favor a fair and honest elec- 
tion. 

There is a distinction observed between other meet- 
ings and meetings of directors, and in a board of di- 
rectors a majority of members is necessary to form a 
quorum. 

But this is not the case with stockholders; for 
in the absence of expressed provision any number 



220 Corporation Law as Applied 

present more than one may transact business at a duly 

and lawfully called meeting. 

Ibid, — citing with many other cases : 

Ex parte Willcocks, 7 Cowen (N. Y.), 402. 

Craig vs. First Presb. Church, 88 Pa. St., 42; 

Brown vs. Pacific Mail S. S. Co., 5 Blatchf. (U. S.), 

525. 
But although there may not be a sufficient number 
present to transact business, they still have power to 
adjourn the meeting. 
Ibid, — citing : 

Ellworth Woolen Mfg. Co. vs. Faunce, 79 Maine, 440 ; 
Weinburgh vs. Union St. Ry. Adv. Co., 55 N. J. Eq., 

640; 
Franklin Trust Co. vs. Rutherford Boiling Spa. Co., 

57 N.J. Eq., 42; 

Rutherford Boiling Spa. Co. vs. Franklin Trust Co., 

58 N. J. Eq., 584. 
See also : 

Ex parte Rogers, 7 Cohen (N. Y.), 526, 530, Note. 

Majority may subsequently ratify and make valid 
the acts of a minority meeting. 

Ibid (Clark and Marshall, supra), sec. 715. 

The presumption of law in regard to a meeting is 
that a quorum was present. 

Ibid. 

In fact, the presumption of law in regard to the 
legality, regularity and validity of corporate meetings 
are all favorable thereto; thus practically placing the 
onus probandi upon the stockholder — whether "attack- 



to Private Business Corporations 221 

ing," ''dissatisfied," or the like. This rule of law is 
most certainly correct and proper. 

Stock owned by the corporation itself (called com- 
monly treasury-stock) must not be counted as present 
or voting. 

See 
Greene vs. Seymour, 3d Sandford Ch. (N. Y.), 285. 

Where a court cannot see a fraudulent or dishonest 
intent or purpose it will not interfere with a majority 
of the stockholders agreeing among themselves as to 
running the corporate business and affairs. 

See: 
Thompson on Law of Corporations, Vol. IV., sec. 

4447 et seq. 
Gregory vs. Patchett, 33 Beavan, 595 ; and 
Atwoll vs. Merryweather, law R., 5 Eq., 464; Note. 

"The law wisely condemns all contracts * * * 
which tend to influence the majority of stockholders 
to fulfil their own natural desire and inclination 
against the other stockholders.'* 

See: 

Wilbur vs. Stopel, 52 Mich., 344. 

See also Clark and Marshall, p. 1972-3-4, etc., for 
a careful discussion of this subject in extenso^ i. e., as 
to place where corporate meetings may be held. 

Also, Angel and Ames, sec. 498 — holding all pro- 
ceedings outside of domicil State are void. 

The action of a meeting of stockholders of a corpo- 



222 Corporation Law as Applied 

ration is the action of the corporation and not of the 
individuals composing it. 

In 

Sellers vs. Greers, 172 Ills., 549, etc., 
it is held (syllabus), that — * 

"The property of a corporation is not subject to the 
control of its members or stockholders, and a contract 
by a stockholder to sell or dispose of the corporate 
property, not authorized or ratified by the corporation, 
has no binding effect." 

Opinion of the court by Craig, J. (1898). 
Ibid. 

Records of all meetings should be properly kept 
and recorded, and if duly attested are evidence; but 
such records are not essential to the validity of the acts 
done unless specially required by charter, by-law or 
statute, and parole evidence is competent to prove what 
was done. 

Ibid. 

Of the persons who are entitled to vote, the follow- 
ing rule is laid down in Clark and Marshall, sec. 653, 
subdivision "a" : 

"In the absence of express charter or statutory pro- 
vision to the contrary, the general rule is that every 
member of a corporation not having a capital stock, 
and every legal owner of shares in a stock corporation, 
has a right to be present and vote at all corporate 
meetings." 

As to who are owners of stock and thus entitled to 



to Private Business Corporations 223 

vote, the books of the corporation are prima facie 
evidence. 

Ibid. • 

Again, the above authors at sec- 653, subdivisions 
b" and "f" state in effect : 



ii-U)) 



A certificate is not necessary to constitute one a 
stockholder, and the right of a person who owns stock 
to vote the same is not affected by the fact that no cer- 
tificate has been issued to him, or, if it has, by his 
failure to produce the same. 

Ibid. 

While stockholders have certain rights and privi- 
leges and powers which they can exercise at meetings, 
they may at the same time surrender or restrict their 
power to vote by agreement, by consenting to by-laws 
or otherwise, — provided the agreement does not violate 
any charter or statutory provision, and is not contrary 
to public policy. 

Ibid. 

"Majority stockholders, however, as we have seen, 
will not be allowed to control the corporation in the 
interests of themselves individually and in fraud of the 
rights of the minority." 

Ibid, sec. 653, subdivision "o." 

This question will be discussed in Chapter XVI., 
"Stockholders Inter sese," post; particularly as to 
duties of the majority toward the minority — the most 
fruitful source of corporate litigation. See also Chap- 



224 Corporation Law as Applied , 

ter XVIL, and the text generally of the succeeding 
chapters. 

The common-law rule was that all persons should 
be present in person. 

Ibid. 
Rule relaxed by charter, by-laws and statutory en- 
actment. 

Ibid (Clark and Marshall). 

Angel and Ames. — Angel and Ames, Chap. XIV., 
sees. 487, ct seq., in substance say : 

That the principal points regarding corporate meet- 
ings are — 

(i) The mode of convening; 

(2) The place of meeting; 

(3) The number of members and officers required 
to be present to render their acts valid. 

Wilcock on Municipal Corporations, sec. 58, says : 
All corporate affairs must be transacted at an as- 
sembly : 

( 1 ) Convened upon due notice ; 

(2) At a proper time and place; 

(3) Consisting of the proper number of persons; 

(4) The proper officers. 

The foregoing was approved in People ex rel Loew 
vs. Batchellor, 22d N. Y., 128, 134. Opinion by Sel- 
den, J. 

Business which may be transacted at a meeting of 
the corporation may also be legally transacted at an 



to Private Business Corporations 225 

adjournment of such meeting; and no new notice is 
necessary. 

The principle that the actions of an adjourned meet- 
ing is as vaUd as if done at the original meeting was 
discussed in the celebrated English case of Scadding 
vs. Levant, 5 Law and Eq., 16, House of Lords, July, 
1851. 

The lord high chancellor, in answer to Lord 
Brougham, said: 

*'Does not the same authority continue from day to 
day if the business is declared not to be concluded, as 
from hour to hour in the same day ? Suppose we were 
to adjourn now for a quarter of an hour, would it not 
be the same meeting when the House resumed its 
sittings ?" 

See: 

Warner vs. Mower, 2 Vermont, 385. 
Smith vs. Law, 21 N. Y., 296, is to the following effect 
in head-note: 

''The by-laws of a corporation having nine direct- 
ors established certain days for regular meetings and 
provided that when at such a meeting less than a 
quorum, but three or more directors, should be pres- 
ent, they should have power to adjourn to any time 
prior to the next regular meeting : Held — that 
five directors, or a majority of them, at such an ad- 
journed meeting may exercise the ordinary corporate 
powers, although the absentees have no other notice 
of the meeting than that with which they are charge- 
able from the by-laws," 



226 Corporation Law as Applied 

The reported case sustains the syllabus. 

Upon some of the questions in the case not affecting 
our subject there was some difference of opinion 
among the judges sitting; but — 

'The court, however, concurred in affirming the 
general powers of the directors at the adjourned 
meeting to exercise the corporate powers." 

Comstock, C. J., with Bacon, J., wrote the opinion; 
Welles, Selden, Denio, Davies, Clark and Wright, J. J-, 
concurred. 

A legal meeting of the stockholders may be had 
where all of the stockholders are present, and consent. 

Angel and Ames, sees. 491-2; also, sec. 495, to ef- 
fect that 

Meetings must be by personal notice, unless some 
other provision therefor is made by law or charter. 

Notice must be given a reasonable time before the 
meeting; reasonable time depends upon circumstances. 
Ibid, sec. 494. 

All corporate affairs must be transacted at an as- 
sembly convened upon due notice. 

See People ex rel Loew vs. Batchellor, 226. N. Y., 
128, supra; opinion by Selden, J., approving Angel 
and Ames and Wilcock on Municipal Corporations. 

The same rule applies to private corporations. 
Ibid. 

In absence of contrary charter provisions, "corpo- 
rations are subject to the emphatically republican prin- 
ciple that the whole are bound by the acts of the ma- 



to Private Business Corporations 227 

jority when those acts are conformable to the articles 
of the constitution. 

Angel and Ames, sec. 499. 
It is to be remembered, however, that the will of 
the majority must not be oppressive or injurious to 
the minority. 

See this subject, Chap. XVI., "Stockholders Inter- 
sese," post. 

Also Chapters XIX. et seq., covering generally the 
topic, "Stockholders' Rights and Wrongs." 

The rule in regard to the management of corpora- 
tions is purely democratic, in that the will of the 
minority must yield to that of the majority, within the 
limits stated. 

Potter. — "Though a corporation is distinct from the 
individuals composing it, yet being intangible it can 
transact its business and manifest its wishes only by and 
through these individuals. Consequently, meetings of 
the members have to be held from time to time for the 
various purposes connected with the corporation. At 
all meetings every member has a right, apart from pro- 
vision expressed or implied to the contrary, to be pres- 
ent. Notice must, therefore, in some way or other, 
be given to each person entitled to be present; the 
omission of such notice to anyone, though he may have 
given a general dispensation of notice, and though the 
omission be accidental, will invalidate the proceedings 
at the meeting. Though all members have primarily 
a right to receive notice and to attend, yet the statute. 



228 Corporation Law as Applied 

charter, custom, or the by-laws of the corporation 
may restrict the number having this right ; but restrict- 
ive by-laws, which are repugnant to the charter, or 
statute instruments or otherwise, will be invalid." 
Potter on Private Corporations, Vol. L, Chap. XIIL, 

sec. 336, p. 417; citing: 
People ex rel Loew vs. Batchellor, 22d N. Y., 128. 
People's Mutual Ins. Co. vs. Westcott, 14 Gray 

(Mass.), 440. 
State vs. FergusoUj 2 Vroom (N. J.), 107. 

In People vs. Batchellor, supra, Judge Selden deliv- 
ered the opinion of the court, and cited Scadding vs. 
Lorant, supra: 

"We think that notice so given extended to all the 
adjourned meetings, such adjourned meetings being 
for the purpose of completing the unfinished business 
of the first meeting and being in continuation of that 
meeting." 

The decision in this important case (People vs. 
Batchellor), also contains the following, p. 134: 

'Tt is not only a plain dictate of reason, but a gen- 
eral rule of law, that no power or function entrusted 
to a body consisting of a number of persons can be 
legally exercised without notice to all members com- 
posing such body." 

The learned judge cites Wilcock on Municipal Cor- 
porations, sec. 58, and Angel and Ames, Chap. XIV., 
sec. I, and in confirming the necessity of notice, adds: 
uji, jij ^ ^^^ ^g ^1^^ reason of the rule, so no doubt 



to Private Business JJorporations 229 

the rule itself, applies with equal force to all aggregate 
bodies, although unincorporated." 

Parties present and not objecting cannot afterward 
dispute regularity, etc. 

Potter on Private Corporations, sec. 337. 

The rule of the courts of England as to service of 
notice of corporate meetings has been adopted in this 
country, both by statute and our courts. 

Potter on Private Corporations, sec. 342. 

A marked distinction is noted between ''General" 
and ''Special" Meetings, — 

Citing, Warner vs. Mower, 11 Vermont, 385. 

Cook. — "Stockholders of a corporation are the 
origin, existence and continuance of the corporation 
itself. 

"They elect the directors and control the general 
policy through them. 

"These vital powers can only be exercised in cor- 
porate meetings. Therefore, method of calling time 
and place of meeting, notice to be given and other in- 
cidents, are of great importance.'* 

Cook on Corporations Vol. II., sec. 588, p. 1268. 

Meeting should be within boundaries of the State 
creating the corporation, although through agents the 
company may transact business in another State. 
Ibid, sec. 589. 

The above author notes the fact that there is a dif- 



230 Corporation Law as Applied 

ference of opinion as to the effect of business transac- 
tions without the domicil State. 
Ibid, citing, — Craig Silver Co. vs. Smith, 163 Mass., 

262, 265 (1895), 
in which the question is fully discussed and numerous 
authorities are cited. 

From all of the above and other authorities the rule 
would seem to be : 

First. — That as an aggregate body a corporation 
can act only within the confines of its domicil State. 

Second. — It may, however, act without such limits, 
by or through its duly authorized agents. 

One interpretation of the above rule gives the cor- 
poration power to act in as many States as have rec- 
ognized it through the act of incorporation. 

On failure of the proper party to call meeting, court 
will compel it by mandamus. 

Cook on Corporations, sec. 593. 

Three things are necessary for a notice of meeting : 
I, Time; 2, Place; 3, Business to be done. 
Ibid, sec. 595. 

The right of stockholders to elect directors is abso- 
lute and imperative, and cannot be taken away. 
Ibid, sec. 603. 

The powers of stockholders at meetings are : 

(a) To elect directors (or trustees) and thereby 
direct the policy of the company. 

(b) In the first instance make by-laws and there- 
after amend them, etc- 



to Private Business Corporations 231 

(c) Continue or dissolve the corporation. 
Ibid, sec. 602. 

Meetings must be held at the prescribed hour and in 
the proper place. 

Time and place must be reasonable. 
Ibid. 

In the matter of election of directors : 

It may be said that such election must be in accord- 
ance with the charter, by-laws and general laws on the 
subject. 

In the absence of these provisions the election must 
be conducted according to the sound discretion of 
those in charge. 

Ibid, sec 605. 

And it is to be herein noted and remembered that 
the object of the election is to afford every stockholder 
an opportunity to express his wishes ; and that in the 
exercise of this right he will be fully protected. Insig- 
nificant technicalities will not be allowed to disturb 
vested rights in the premises. 

The foregoing applies to all matters connected with 
stockholders' meetings. 

Morawetz. — Morawetz, on the subject of stock- 
holders' meetings, has this to say concerning majority- 
control, viz., that it is an implied condition in the for- 
mation of every association of this character that the 
majority of members present at a shareholders' meet- 
ing shall have authority to bind the whole association 
by vote. The extent of the power of the majority to 



232 Corporation Law as Applied . 

act for the body corporate is measured by the charter 
itself. Each and every shareholder contracts that the 
will of the majority shall govern in all matters coming 
within the limits of the corporation. 
Morawetz on Corporations, sec. 474, etc., — citing 
Dudley vs. Kentucky High School, 9 Bush. 
(Ky.), 578. 
See also sec. 641 of the same work, as follows : 
*'Every act of an association, whether incorporated 
or not, must necessarily be the act of all the members 
who compose the association. * * ^ 

"Every member of such an association impliedly 
agrees that a majority shall have power to bind him 
by their vote, so long as they act within the express 
or implied terms of the charter. * '^ * " 

The deduction from all the foregoing is that the 
majority shall govern. 

But at the same time it must not be forgotten that 
common-sense, equity and justice step in here and 
limit the otherwise illimitable power of the majority, 
even within the statutory confines of charter and by- 
laws, and say that there are certain duties which one 
stockholder owes to another which must not be trans- 
gressed or laid aside. 

See herein, particularly on subject of duties, Chap- 
ter XVI., "Stockholders' Inter-sese," post. 

Shares owned by the corporation have no voting 
qualities. Treasury shares are a mere "fiction." 
Ibid (Morawetz), sec. 478. 



to Private Business Corporations 233 

Where charter or by-laws fix time and place for 
meetings other notice is mmecessary; otherwise every 
stockholder is entitled to reasonable notice. 

Ibid. 

The right to vote belongs to the shareholder. 'S' 'Ji * 
This right may be restricted by legal holders of equi- 
table obligations to third persons. 

"Thus a shareholder who had made a complete sale 
or assignment of his interests in shares has no right, 
as against his assignee, to vote upon them without the 
consent of the assignee, although a regular transfer 
may not have been executed on the company's books." 
Ibid, sec. 483. 

The consensus of opinion is that the actual hona- 
ade owner is the one entitled to vote ; but in case 
the company has not yet received and recorded in its 
archives, official notice of the fact of ownership, he 
must produce satisfactory proof of such ownership. 
This rule also holds good in regard to the bringing of 
actions by stockholders. 

Corporate elections held without the domicil State 
were declared wholly void by the Supreme Court of 
Maine in Miller vs. Ewer, 2y Maine, 509 ; citing. Free- 
man vs. Mechias Water Power Co., 38 Maine, 345 and 
46 A. M. Dec, 619. 

Waterman on Law of Corporations, sec. 62. 

But see Capp vs. Lamb, 12 Maine, 312, 314. 

Meetings must be within the State. 



234 Corporation Law as Applied 

Thompson. — See Thompson, Vol. I, sec. 696. 

As to who may call meetings — this authority is usu- 
ally provided by charter or by-laws. In the absence 
of such provision the court will, upon application, 
grant mandamus for the purpose. 

Thompson, supra, sees. 704, 705. 

Notice must be had by stockholders; presumptive 
notice is sufficient for so-called stated meetings ; other- 
wise actual notice is required, and all are entitled 
thereto. 

Ibid, sec. 708. 

Requisites of notice are: 

1. Authority to call; 

2. Time and place; 

3. Business to be done. 

Ibid, sec. 710. 
As a rule, the majority governs. 
Ibid, sec. 725. 

Spelling. — Spelling treats of this subject with great 
learning and clearness : 

"The members of a corporation in meeting assem- 
bled are not the corporation; and yet, as its directing 
and governing agent, they are limited in their power 
over it only by charter and general law. ''^ * * As 
long as no mandatory provision of law, the charter 
or by-laws is violated, the members may conduct a 
corporation meeting in any manner convenient and 
agreeable to themselves. No particular formalities 
are required, and mere irregularities are unimportant, 



to Private Business Corporations 235 

provided the sense of the meeting is fairly expressed. 
In order to be of any avail to members present, they 
must object to, and enter protest against, irregulari- 
ties at the meeting, if aware of their occurrence." 
Spelling on Private Corporations, Vol. L, sec. 370, 
p. 402. 
'The rule that agents for a corporation shall not 
exercise its authority in its own interest, at the ex- 
pense of the membership, has no application to them 
when assembled in a corporate meeting for the pur- 
pose of voting, unless they corruptly sacrifice the in- 
terest of the corporation for their own gain. As long 
as they act in good faith and with due diligence, 
members may elect themselves and constitute them- 
selves agents of the corporation and thus control its 
business and funds. But there is a point of abuse, at 
which courts will interfere, even with the privilege of 
voting. If the majority attempt to appropriate the 
corporate funds to their own use, or to direct the busi- 
ness to objects not contemplated in the charter or 
incidental to its lawful objects, courts will administer 
preventive relief to an aggrieved shareholder." 
Ibid, sec. 377. 

"It is an implied condition in every contract of 
membership in corporations for profit that a major- 
ity in point of interest and in point of numbers in 
every corporation shall control its operations and its 
funds. * * 'J^ But the rule is subject to the limi- 
tation that no majority, however large, can misapply 
the funds or divert the operations of the corpora- 



236 Corporation Law as Applied 

tion aside from or beyond the chartered purposes 
or agreements of association, or in total disregard to 
the formahties prescribed by law or the articles, so as 
to bind a dissenting minority." 

Ibid, sec. 371. 
"It is only when the entire collective interest is 
ignored or disregarded, or when the majority, or the 
agents they may have selected, pervert the corporate 
machinery to their individual interest, or to purposes 
and objects other than those for which the corpora- 
tion was formed, that the minority have a right to 
complain or have any right to appeal to the courts. 
* * * Courts of equity are, in such cases, the 
minority stockholders' stronghold." 

Ibid, sec. 373. 

As has been shown, the stockholders are formed 
into a body corporate by the sovereign power of the 
State, acting through the charter, whether granted 
by special legislation or by general statute; and to the 
artificial body thus created are given certain powers, 
rights and privileges, and the ability to do or refrain 
from doing certain acts and things. This ability and 
those powers, rights and privileges belong to the stock- 
holders and to each of them exclusively. Upon the 
formation of a corporation the stockholders part abso- 
lutely with their money or property, or in some cases 
with equivalent services, to the value (supposedly) of 
the shares of stock of which they become the owners ; 
in exchange, however, they obtain certain rights, viz. : 

(a) A right to a distributive share (pro rata) of 



to Private Business Corporations 237 

such of the money or property of the body or corpo- 
ration as is not required for its present uses and pur- 
poses and can therefore be safely paid in dividends 

{h) A right to take part in the management and 
control of the body, to the extent of saying what par- 
ticular persons shall carry on its business operations. 

These rights are exercised by means of the suffrages 
of the shareholders, and it is principally for elective 
purposes that stockholders' meetings are had. 

There are, however, other classes of meetings, which 
will be enumerated in the proper place. 

It is well to note again that all the powers of a 
corporation, — that is, those powers which the body 
may exercise by force of the charter, and in conform- 
ity with law, spring from the stockholders; and this 
original (if it may so be named) source of power 
comes to the stockholders by delegation from the Sov- 
ereign people. 

In Massachusetts it is not necessary, in order to 
qualify as a member of a manufacturing corporation, 
that a party should have a certificate of his shares. 

Chester Glass Co. vs. Dewery, i6 Mass., 94. 

"A stockholder, who owns stock which stands in 
his name on the transfer books, may vote upon it, 
though, at the time, it may be hypothecated by him. 
And a trustee who holds stock for others may so vote." 
Note cites. Ex parte Willcocks, 7 Cowen (N. Y.), 
402; Ex parte Holmes, 5 Cowen (N. Y.), 435. 



238 Corporation Law as Applied 

The rule is stated to be in substance : In absence of 
special provisions the whole are bound by the acts of 
the major part of those who were present at a regular 
corporate meeting, whether the number present be a 
majority of the whole body or not. 

Bouvier. — The foregoing are from Bacon's Abridg- 
ment, Vol. IL, pp. 436 to 483, notes, etc., by John 
Bouvier. 

(T. and J. W. Johnson, Philadelphia, i860.) 

The wishes of corporation, its internal policy and 
the general conduct of its affairs are ascertained and 
authoritatively expressed at meetings of stockholders 
held for that purpose, where are afforded opportunities 
for interchange of views and mutual discussion. 

On such occasions, 

"Officers must be appointed or elected, by-laws 
passed and vacancies filled, not to mention the numer- 
ous other proceedings calling for united action." 

Waterman. — Waterman on the Law of Corpora- 
tions, Vol. I., sec. 59, p. 197-8. 

Notice to all is required. 

Ibid, sec. 60. 

Where meeting is "stated" every member is pre- 
sumed to have notice. 

Notice must be given to every stockholder of spe- 
cial meetings. 

Stockholders should be informed of the purpose and 
object of special meetings, and also in case extraor- 



to Private Business Corporations 239 

dinary business is to be transacted at a stated meet- 
ing, stockholders should be pre-informed of it. 

Corporations cannot migrate out of their home 
State. 

Ibid, 62, et seq. 

"* * "^ Members are bound by acts of majority 
when such acts are conformable to the charter; each 
one having tacitly agreed to subordinate his individ- 
ual will to the will of the corporate body ascertained 
according to law. The majority here means the ma- 
jority of those who are present at a regular corporate 
meeting." 

Ibid, sec. 67. 

Such was the rule of the Roman Law, i. e.j majority 
binds. 

See Savigny's System of the Roman Law, Vol 11. , 
sec. 97, p. 329, and such has since become the law 
of the land. 

Sec. I, art 3, p. 1441. 

Domat's Civil Law, Vol. L, p. 568. (Little & Brown, 
Boston, 1850.) 

The nomination of such governors and directors is 
made by a plurality of voices, when those who have a 
right to vote are assembled in the manner and in the 
numbers prescribed by the rules and custom of the 
community. * * .* 

Waterman, supra, sec. Sy, cites, Kenyon, C. J., in Rex 
vs. Beeston, 3 Term R., 592 : 



240 Corporation Law as Applied . 

'The act of the majority binds the whole; so much 
so, that the court will compel the person who has the 
seal to affix it to any act according to the vote of the 
majority, though against the consent of that person." 

Separate private acts of members are invalid, but 
usually provisions as to voting powers and qualifica- 
tions are made by law. Power of majority may be 
limited and greater number required, etc., etc. 
Ibid, sec. 71, etc. 

Although the legislature authorizes a fundamental 
change in original purpose of act of incorporation — 
any stockholder may object, because the relation be- 
tween stockholder and corporation is one of contract, 
the obligations of which cannot, under the Constitu- 
tion of the United States, be impaired. 

Ibid, — citing a long line of cases- 

Blackstone. — 

"In aggregate corporations, also, the act of the 
major part is esteemed the act of the whole, =5^ * * 
but with us any majority is sufficient to determine the 
act of the whole body." 

Blackstone's Commentaries, Book L, Chap. XVIII. , 
Vol. I., p. 476 (Starswood's Ed., Phila., 1863). 
Meaning of "Legal Owner" : 

"It is the object of statutory regulations to afford 
corporations a convenient test of the right to vote in 
cases of dispute between persons claiming ownership 
of its stock; and they are not bound to stop or delay 
proceedings in order to investigate the equitable rights 



to Private Business Corporations 241 

between pledgors and pledgees and trustees and ces- 
tuis-que-trustent. 

(Citing, Hoppin vs. Bufferin, 9 R. L, 513.) 
"The object of the stock-book, and of requiring 
transfers of stock to be recorded by the corporation, 
is for the protection of the corporation, to enable it 
to know who are its members, who are entitled to 
dividends, and to enable it to know who are entitled 
to vote. This is the recognized object of such pro- 
vision, as decided in many cases." 

Spelling, sec. 379. 

People ex rel Probert vs. Robinson, 64 Cal., 373. 

Gilbert vs. Manchester Iron Mfg. Co., 11 Wendell 

(N. Y.), 628. 
Bank of Utica vs. Smally, 2 Cowen (N. Y.), 770-8. 

Commonwealth ex rel Detwiler vs. Com., 131 Penn. 
State, 614. 

Hoagland vs. Bell, 36 Barb. (N. Y.), 57. 

Kent.— 

"The same principle prevails in these incorporated 
societies, as in the community at large, that the acts 
of the majority, in cases within the charter powers, 
bind the whole. The majority here means the major 
part of those who are present at a regular corporate 
meeting." 

Kent's Commentaries, Vol. IL, Part IV., sub. 8, 
sec. 33, p. 293. 

There is a difference between ''stockholders' " meet- 



242 Corporation Law as Applied 

ings and "directors' " meetings; all of the text-books 
herein cited note the difference, and the same rules 
do not apply equally to both. See Chapter XV., post, 
and places referred to in Index, for rules governing 
meetings of directors. 

Brice. — The following, until otherwise noted, is 
from Brice's Ultra Vires (Stevens & Haynes, London, 

1893). 

(Reference generally is to pages as well as to sec- 
tions. Some passages are given verbatim; others, in 
substance. ) 

Meetings have to be held for the various purposes 
of the corporation, and it is necessary to observe legal 
requisites for the validity of such meetings. 
Ibid, p. 33. 

"Notice must, therefore, in some way or other, be 
given to each person entitled to be present, and the 
omission of such notice to anyone who is of sound 
mind, though he may have given a general dispensa- 
tion of notice, and though the omission be accidental, 
will invalidate the proceedings at the meeting." 

Ibid. 

Members may restrict the number having this right 
by constating instruments, custom or by-laws; but re- 
strictive by-laws, which are repugnant to the constat- 
ing instruments, or otherwise illegal, will be invalid. 

Ibid. 

Meetings are of two kinds — Ordinary or General, 
and Extraordinary or Special. 



to Private Business Corporations 243 

Notice of Extraordinary meetings should carefully 
and exactly specify objects, etc. 

The majority bind the minority "unless the concur- 
rence of all has been for special reasons rendered nec- 
essary." 

The rule as substantially laid down by all approved 
authors is, — 

That in the absence of special laws on the subject, 
all (each and every one) of the stockholders are en- 
titled to notice in some one way or another. 

Corporations may make and enforce by-laws for 
compelling, by means of pecuniary penalties, attend- 
ance of members. If all persons entitled thereto are 
actually present, with or without notice, and do not 
object, etc., want of notice is excused. 

''Even persons not present, and who did not receive 
notice, may, by subsequent acquiescence in the resolu- 
tions passed or other business done, be bound, if infra 
vires. 

Presumption, according to the maxim — Omnia rite 
esse acta prmsumuntur — is that meetings are properly 
and lawfully called and conducted. 

Ibid. 

"Meetings may be adjourned, but nothing may be 
transacted at any adjourned meeting save the unfin- 
ished business of a former meeting.'* 

Ibid. 



244 Corporation Law as Applied, 



CHAPTER XIV. 

Stockholders' Meetings — (Continued) . 

Will of majority controls. — Binding effect dependent 
upon proper notice. — Individual assent not equiva- 
lent to meeting. — Real owner, as opposed to record 
owner, entitled to vote. — Stock-vote as binding as 
sealed instrument. — Supervision by court of equity. 
— Illegal votes not necessarily fatal to whole meet- 
ing. — Perpetual voting trust invalid. — Inequitable 
or fraudulent acts restrained. — Limits of corporate 
power. 

Will of majority controls. — Force of circumstances 
demands that instead of each and everyone of the 
stockholders managing and controlling the corporate 
affairs, they delegate their powers to a fewer and more 
wieldy number. 

Ibid (Brice), sec. 3, p. 36. 

These agents are of two classes : 

(a) Those who may be styled the Managing or 
Governing body, and 

(b) Ordinary or Subordinate agents. 

Ibid. 

Having afforded the reader a resume of Mr. Brice' 3 



to Private Business Corporations 245 

clear and useful statement of the topic in hand, certain 
English and other cases will now be briefly quoted 
before proceeding to what other learned text-writers 
have said on this important 'subject generally. 
In Rex vs. Varlo, Lord Mansfield said : 
"It is in the nature of all corporations to do corpo- 
rate acts, and where the power of doing them is not 
specially delegated to a particular number, the general 
mode is for the members to meet upon charter day, 
and the majority who are present do the act." 
Cowper's Reports (Cases before King's Bench), Vols. 
I. and II. (bound in one), pp. 248-250. 

''It is a valid objection to a relator, applying for a 
quo warranto information, that he was present and 
concurred at the time of the objectionable election, 
even although he was then ignorant of the objection: 
for a corporator must be taken to be cognizant of the 
contents of his own charter and of the law arising 
therefrom." 

King vs. Trevenen, 2d Bernwald and Aldersons' Re- 
ports (King's Bench), p. 339 (syllabus). 

While this case affected a municipal corporation, it 
recognized the principle that a member of a corpo- 
ration bars himself from objecting to the transactions 
of a meeting at which he himself was present and 
concurred, and that knowledge of those affairs was 
imputed to him. 

See same subject elsewhere herein. Chap. XX., 
''Ratification/' post. 



246 Corporation Law as Applied 

"A shareholder who was present and voted at the 
adjourned meeting, held not entitled to take advan- 
tage of the irregularity of the notice." 
Re the British Sugar Refining Co. ex parte Ferris, 
L. J., 26 Chan., 369. 

The same case also held to the following effect: 

"The transactions of business at the meeting, for- 
eign to the objects specified in the notice, will not 
make the whole meeting irregular." 

The act of a majority of the stockholders, ex- 
pressed elsewhere than at a meeting of stockholders 
regularly convened, is not binding. 
Stowe vs. Wyse, 7 Conn. Reps., 214-221. 
Angel and Ames, sec. 594. 

Binding effect dependent upon proper noticeo — In 

the case of Stowe vs. Wyse, supra, Daggert, J., said ; 

'(^ * * Though a meeting regularly warned would 
be competent to do any act within their corporate pow- 
ers by a bare majority, yet if not thus warned- (i. e., 
notified), their act must be void." 

If notice is not provided for by law, every member 
must have personal notice. 
Stevens vs. Eden Meeting House Society, 12 Vermont 

R., 688; 
opinion by Collamar, J. 

The corporation and every member is bound by a 
majority vote of those present and properly warned 
(notified), and not otherwise; if no provision is made 



to Private Business Corporations 247 

for notification, every member is entitled to personal 

notice. 

Steven vs. Eden Meeting House Society, 12 Vt., 688. 

Where a meeting is called by personal notice on all 
the stockholders, their action is valid, and even if one 
of such stockholders was an imbecile, that objection 
could not avail. 

"If the notice was legal then the corporation was 
duly summoned ; the law cannot look into the capacity 
of the stockholders to transact business, but can only 
regard the capacity of the aggregate body when duly 
assembled. If it were otherwise, the legal capacity of 
a stockholder, such as coverture, infancy or insanity, 
would operate as an effective obstacle to a valid assem- 
bly of an aggregate corporation." 
Opinion by Bigelow, J., in Stebbins vs. Merritt, 10 
Cushing (64 Mass.), 27, 32. 

It is the duty of those connected with the affairs of 
an imbecile, infant or incompetent person to see to it 
that a proper person is put in charge thereof. 

A party objected to meeting because notice of same 
was not proved — but it appeared that objector was 
present and voted by proxy — held, that the objection 
was unimportant. 
Jones vs. The Milton Turnpike Co., 7 Indiana, 547. 

Persons owning a majority of the stock of an in- 
corporated company * * * entered into an agree- 
ment, as between themselves, that they would elect the 
directors of the Company; that they would determine 



248 Corporation Law as Applied 

among themselves as to its officers and management; 
and that if they could not agree they would ballot 
among themselves for the directors and officers and 
that the majority should rule, and their vote be cast 
as a unit, so as to control the election. Held, — 

"This agreement was not against public policy; the 
persons owning a majority of the stock had a right to 
combine, and thus secure the board of directors and 
the management of the property." 

The above decision was based upon the assumption 
from facts which showed there was no hidden ad- 
vantage intended — no fraud — no dishonesty. 
Faulds vs. Yates, 57 Ills., 416, 422. 
(Opinion of the court by Thornton, J.) 

''To render the vote of an incorporated company 
valid as the acts of the corporation, the meeting in 
which it was passed must have been warned (notified) 
in the manner prescribed by the charter or by-laws, or 
in the absence of any such provision, by personal notice 
to the members." 

Stowe vs. Wyse, 7 Conn., 214; see also the note to the 
above. 

Wiggin vs. Freewill Baptist Church, 8 Mete. 
(Mass.), 301, sanctions the doctrine that personal 
notice to all the members must be given, unless some 
other provision is made in the charter or by-laws, and 
that a vote passed at a meeting not so called is not 
binding. 

u^ * "^ AH the directors who were in New Haven 



to Private Business Corporations 249 

were notified to attend a meeting of the board for the 
transaction of ordinary business. This for ordinary 
transactions was legal notice." 

Savings Bank of New Haven vs. Davis, 8 Conn. Reps., 
191 (200). 

To the same general effect inter alia, see : 

Majority stockholders of a company doing unsuc- 
cessful business may sell assets. A stockholder who 
participates in such sale, even if it be voidable at the 
election of non-participating stockholders, cannot avoid 
it when ratified by their acquiescence. 

Berry vs. Broach, 65 Miss., 450. 

This also comes under the head of "The Power to 
Alienate," Chapter V., and ''Stockholders Inter Sese," 
Chapter XVI., qiios vide. 

'Tf all the members have not received notice, a cer- 
tificate by a majority is void. ^ * ^ A member of 
a committee does not waive his right to be notified, by 
his absence." 
Jackson vs. Inhabitants of Hampden, 20 Maine, 37. 

This case is regarding a school-committee and is of 
questionable application to the subject of private cor- 
porations, though cited in that connection in the text- 
books. 

The following, a leading case, touches some points 
other than the one under consideration. 

"A majority of stockholders present at meeting reg- 



250 Corporation as Law Applied 

ularly convened with due notice * * * have the 
right to * * * dissolve the corporation." 

Hancock vs. Holbrook, 40 La. Ann., 53. 

"Every stockholder contracts that the will of the 
majority shall govern in all matters coming within the 
limits of the corporation." 

Dudley vs. Kentucky High School, y2 Kentucky (9 
Bush), 576. 

"And in cases involving no breach of trust, but only 
error or mistake of judgment upon the part of the 
directors who represent the company, individual stock- 
holders have no right to appeal to the courts to dic- 
tate the line of policy to be pursued by the corpora- 
tion." 

Ibid, — citing Angel and Ames, sec. 393. 

But note the fact that the learned judge (Lindsay) 
so qualifies the rule that it applies only in cases "in- 
volving no breach of trust," i- e., involving only errors 
of judgment. 

"The business affairs of a corporation are always 
controlled by a majority in interest, unless the charter 
otherwise provides." 

Covington vs. Covington, etc.. Bridge Co., 73 Ken- 
tucky (10 Bush), 69. 

Annexed to the report of this case is a long line of 
cases in point ; quod vide. 

"The election of directors and other suitable offi- 
cers or agents for the direction and government of 
the affairs of the corporation, and its conduct through 



to Private Business Corporations 251 

the agency of such officers, pertain to the condition 
and nature of corporation bodies. The creation of 
this corporation by the act of the legislature, which 
should have contained no provisions whatever for the 
choice of directors, or for the management of its af- 
fairs through the agency of such, would have implied 
all that is expressly conferred by the provisions which 
the act contains, except so far as those provisions re- 
late to the time, place or other modes to be observed 
by the corporation in the exercise of that inherent 
function. * *!= * The law is merely directory and 
does not in terms, or by any implication, attach such 
a consequence to an omission or non-observance of the 
prescribed mode of exercising the power to elect di- 
rectors." 

Hughes vs. Parker, 20 New Hampshire, 58, 71, — 
citing. Lord Hardwicke in The King vs. Poole, 
B. R. H., and cases temp., Hardwick, 23, 2 Bar- 
nard, 95, as follows : 

"* * * the statute was in that case directory, 
only, and not restrictive, and was intended only to 
prevent surprise, and that where no surprise appeared 
to have occurred an election, begun, or continued by 
adjournment to any other time, is good." 

See also. People vs. Runkle, 9 Johns, N. Y., 147. 

"By usage, a tacit understanding of the members of 
any other way, is enough. The only effect of a stated 
day of meeting is to dispense with the necessity of 
showing a notice of meetings to absentees." 



252 Corporation Law as Applied 

Atlantic Fire Ins. Co. vs. Sanders, 36 New Hampshire, 
269; opinion by Bell, J. 
Irregular elections are voidable only. 
It was wholly immaterial in what way the day of 
the regular meetings was fixed, if it had been fixed. 
Hughes vs. Parker, supra. 
In Warner vs. Mower et al., 1 1 Vermont, 390, Mr. 
Justice Redfield said, — 

"* * * that a manifest distinction obtains between 
general stated meetings of a corporation and special 
meetings. 

'1 know that stated meetings may, nevertheless, be 
special, i. e., limited to particular business. But stated 
meetings of a corporation are usually general, i. e., for 
the transaction of all business within the corporate 
powers. 

"Unless the object of such meetings is restricted by 
express provision of the by-laws, it would ordinarily 
be understood to be general ; and so every corporator 
would be bound to understand it. But if the object 
of the meeting be limited by the by-laws, it is then a 
special meeting, and no other business could lawfully 
be transacted at such meeting unless special notice was 
given. Where the meeting is stated and general, no 
notice is required either of the time or place of hold- 
ing the meeting, or of the business to be transacted. 
Angel and Ames on Corporations, 275. Such is the 
general law of private corporations.'* 

This case also holds that all corporations are enti- 



to Private Business Corporations 253 

ties of the law merely, and the force and effect of 
every act depends upon the charter and by-laws. 

Ibid. 

These are denominated the constitution and laws of 
the corporation, and like every other constitution and 
all other laws, should receive such construction as to 
effect the probable intention of the framers. 
Ibid, p. 392. 

''But it is undoubtedly competent for the corpora- 
tion to restrict the business to be done." 

Ibid. 

"If a special meeting is called for a particular pur- 
pose the corporators have a right to expect that noth- 
ing else could or would be done. But not so in regard 
to the annual meeting. This meeting is intended for 
general business. * * * No doubt a corporation 
might provide that even stated meetings should be 
warned {i. e., stockholders notified) in a particular 
way, and unless they were so warned, no business 
could be transacted." 

This case also held in substance that meetings must 
be upon notice as required by by-laws or the same are 
wholly without authority and business done thereat 
is not binding ; for the minority, if any, whether pres- 
ent or absent, could not be bound, except in obedience 
to the by-laws. For in that mode, and that only, have 
they consented to be bound. Every member is enti- 
tled to notice of special meetings unless the by-laws 
excuse it. 



254 Corporation Law as Applied 

Ibid, p. 392-3, — citing Kynaston vs. Mayor, etc., of 

Shrewsbury, 2 Strange's, R., 105 1. 
King vs. Theodrick, 8 East R., 543. 
Stowe vs. Wyse, 7 Conn. R., 219. 
Rex vs. Mayor, i Strange' s Rep., 385. 
Rex vs. Mayor, 2 Burrow's Rep., 723-728. 

In regard to the question of how far unnotified 
members are bound, or the action of the corporation 
affected by failure to notify, a few words will sufifice, 
and these are contained in the following decision : 

In Warner vs. Mower, just above. Judge Redfield, 
in closing his opinion, said : 

"As each corporator knew that it was competent at 
this meeting to transact any business pertaining to the 
corporate interests, the very term, annual meeting, 
was ex vi termini notice to that effect; and it would 
have answered no good purpose to repeat this in the 
notice." 

Ibid. 

In Commonwealth vs. Detwiller (Supreme Court, 
1890), 131 Penn., St. Rep., 614, Mr. Justice Williams, 
in delivering the opinion of the court, said, in his 
verbis : 

"A corporation is a voluntary association of persons 
engaged in a common enterprise. When the methods of 
voting are not fixed by general law, the corporators 
may make such law for themselves, subject to the 
qualification that such laws and regulations as they 
make shall not confiict with the laws of the State or 



to Private Business Corporations 255 

of the United States. * * * The same thing may 
be said in regard to voting by proxy." 

Judge Williams further held that a regulation which 
was reasonable and uniform in its application, working 
no wrong to any shareholder and conflicting with no 
law of the Commonwealth, "is therefore a valid and 
binding law." 

Ibid, p. 635. 

The right to vote by proxy is "not a general right" : 
the party claiming that privilege must show authority. 
Phillips et al vs. Wickham, i Paige (N. Y.), p. 590. 

In the above case the question of how far officers 
of a corporation have the right to hold over until their 
successors are elected is fully discussed by Chancellor 
Walworth; also, as to want of officers working a dis- 
solution. 

Provisions in statutes and by-laws requiring the 
election of directors of corporations to be held on a 
specified day are regarded as directory merely; the 
election, if not held on the regular day, may be held 
at a later day and the directors then chosen, if there 
be no other irregularity or infirmity in their title, will 
be directors de jure. 

Opinion by Judge Earl, in Beardsley vs. Johnson, 
121 N. Y., 224: 
Citing, Vanderbergh vs. Broadway R. R. Co., 29 

Hun., 348; 
Hughes vs. Parker, 20 N. H., 58; 
N. F. Ins. Co. vs. Moe, 58 Id., 48; and 
Peirce on Railroads. 



256 Corporation Law as Applied 

In regard to corporate elections, see Argus Co., vs. 
Manning, 138 N. Y., 557, wherein Chief Justice An- 
drews held: 

Where a candidate at a corporate election receives 
a majority of the legal votes cast, the receipt of illegal 
votes in his favor does not defeat his election. 

Where an agreement exists between the corporation 
and a stockholder that the latter shall not sell or dis- 
pose of his stock without first giving the former op- 
portunity to buy, that mutual understanding does not 
disable the latter from selling, etc., even though the 
buyer was cognizant of the agreement. The fact that 
the transferee holds subject to enforcement of an equi- 
table remedy in no way interferes with his title, nor 
precludes the corporation from treating him as such, 
and according to him all ''the rights of a stockholder, 
including the right to vote upon the stock at a stock- 
holders' meeting." 

The enforcement of specific performance of such an 
agreement by a court of equity rests in the discretion 
of the court ; it will not be enforced as a matter of 
right. 

'Tt is the rule of corporate elections in stock corpo- 
rations that the majority of legal votes determine the 
election. The owners of the majority of the shares 
have the right to designate the directors to whom man- 
agement of the corporation shall be committed. The 
stockholders are the beneficial owners of the property. 
The majority may act unwisely, but they may change 



to Private Business Corporations 257 

the management for any reason, provided only that 
they act within the Hmitations of the charter." 
Ibid, p. 569. 

The statutes of New York, and of the other States, 
regulate with great care the meetings of directors and 
stockholders. For guidance in each particular case the 
laws applicable thereto should be consulted. 

Brice (3d London edition), sec. 2, p. 32, says: 

"A corporation is an imperium in imperio. Its stat- 
utes, by-laws, regulations and customs are its legal 
code, establish in a general manner the mode in which 
its affairs are to be conducted and the rights and pow- 
ers of the various corporators. The members in gen- 
eral meeting assembled constitute a forum, supreme in 
all that relates to internal arrangement, provided they 
keep within the corporate powers and act in subordi- 
nation to the immutable statutes, if any, which form 
its constitution. They can determine the business 
which shall be carried on or concurred in, in the cor- 
porate name. They can maintain or abandon the 
corporate rights, enforce the corporate privileges, or 
allow them to pass into desuetude, improve or waste 
the corporate property, change the nature of that prop- 
erty and divert it from one purpose to another, — in a 
word, keep the corporation alive and active, or permit 
it to fall into decay; but always provided that in so 
doing they are infringing no public rights, are within 
their powers and committing no breach of trust or 
violation of other duties 

"Though a corporation is distinct from the individ- 



258 Corporation Law as Applied 

uals composing it, yet, being intangible, it can trans- 
act its business and manifest its wishes only by and 
through these individuals. Consequently, meetings of 
the members have to be held from time to time for the 
various purposes connected with the corporation, and 
it is therefore very necessary to bear in mind and to 
observe the legal requisites for the validity of such 
meetings. 

"Of those, perhaps the most important is the right 
which every member has, apart from provision express 
or implied to the contrary, to be present. Notice must 
therefore, in some way or other, be given to each per- 
son entitled to be present, and the omission of such 
notice to anyone who is of sound mind, though he may 
have given a general dispensation of notice, and 
though also the omission be accidental, will invalidate 
the proceedings at the meeting. Though all members 
have primarily a right to receive notice and attend, yet 
the constating instruments or custom or the by-laws of 
the corporation may restrict the number having this 
right; but restrictive by-laws which are repugnant to 
the constating instruments, or otherwise illegal, will be 
invalid. 

''On the other hand, a corporation may make and 
enforce by-laws for compelling, by means of pecuniary 
penalties, the attendance of members at corporate 
meetings. 

''But if all the persons entitled to be present at any 
meeting are actually present thereat, whether with or 
without notice, and do not object to the same on the 



to Private Business Corporations 259 

ground of informality, the want of notice will be ex- 
cused, and they will be unable afterward to repudiate 
the .proceedings of such meeting. Even persons not 
present, and who did not receive notice, may, by sub- 
sequent acquiescence in the resolution passed or other 
business transacted at any meeting, be bound by the 
same, if iiltra vires, and be unable to object to the 
want of notice ; so on the maxim, 'omnia esse rite acta 
prcesufrntnter/ where the corporate records are in due 
order and state that meetings were held, it will be pre- 
sumed, in the absence of clear evidence to the contrary, 
that such meetings were duly summoned and properly 
conducted. 

"The requisites of the notice so required to be given 
vary extremely. Generally, its essential parts will be 
set forth by the constating instruments. With joint 
stock companies this will invariably be the case; but 
custom, more especially with municipal and eleemosyn- 
ary corporations, will sometimes determine these req- 
uisites wholly or in part. 

"Special circumstances or arrangements apart, the 
notice should contain, first, the date and time, and 
secondly, the place of meeting, unless there be some 
standing rule or established custom, known to all the 
members, which fixes these, and even then it will be 
more advisable to issue a proper notice to remind for- 
getful members* and thirdly, the business to be con- 
sidered. 

"This last requisite, the business, is a highly im- 
portant requisite, and a failure to specify it clearly and 



260 Corporation Lawjis^Applied 

accurately has invalidated many proceedings, espe- 
cially in the case of joint stock companies. However, 
the transaction of business at a meeting foreign to the 
object specified in the notice will not make the whole 
meeting irregular; nor will a notice to transact pro- 
ceedings, some of which are ultra vires, if the others 
are not so. Nor is it necessary that a notice shall call 
attention to matters which the law presumes that 
everyone is aware of. 

''The length of time which notice must be issued 
previous to meetings is usually fixed by the constating 
instruments. 

''In default of direct provisions it should be a rea- 
sonable time. 

"How the notice is to be given will generally be 
stated in the constating instruments. * * * In the 
absence of special provisions any form of notice, ver- 
bal or otherwise, will suffice. 

"Meetings may be adjourned, but nothing may be 
transacted at any adjourned meeting save the unfin- 
ished business of the former meeting. 

"Meetings are of two kinds, ordinary or general, 
and extraordinary or special. The former are held 
periodically at appointed times, and for the considera- 
tion of matters in general; the latter are called upon 
emergencies, and for the transaction of particular busi- 
ness. Extraordinary meetings being thus summoned 
unexpectedly, the notice relating to them ought to 
specify very carefully and exactly the occasion of the 



to Private Business Corporations 261 

summons and all the business proposed to be transacted 
thereat, so as to call the attention of each member in 
an especial manner to the circumstances. But, beyond 
this, and the further fact that the proceedings of an 
extraordinary meeting sometimes are not final, but re- 
quire confirmation at some subsequent meeting, there is 
little difference in the requirements of both kinds of 
meetings, and the notice to be given previous to either, 
and the formalities to be observed will be very similar, 
if not actually identical. 

''At any meeting, the majority will bind the minor- 
ity, unless the concurrence of all has been for special 
reasons rendered necessary." 

Brice, sec. 2, p. 32, etc. 

"Sometimes it is provided that not less than a def- 
inite number shall be present to render proceedings 
valid. As to the number which shall constitute the 
quorum: First, if the constituting instruments fix 
some definite number, then at least this number must 
be present, and in the absence of the proper number, 
transactions and resolutions of whatever description 
carried on or agreed to will simply be invalid. Sec- 
ondly, the clause appointing the quorum may, how- 
ever, be directory only, or controlled by subsequent 
clauses. Thirdly, when the constituting instruments 
are silent, it is the duty of the court to find out what 
was the usual number of directors who conducted the 
business of the company. But if this dictum is cor- 
rect as applied to the governing body of the mercantile 
company, it seems that in the case of meetings of other. 



262 Corporation Law as Applied 

if not all corporations, the quorum necessary for the 
transaction of special business is, in the absence of 
provision by statute or charter to the contrary, a ma- 
jority of the members." 

Ibid. 

Individual assent not equivalent to meeting. — "The 
assent of a majority of stockholders expressed else- 
where than at a meeting of the stockholders, as where 
the assent of each is given separately and at different 
times to a person who goes around to them privately, 
does not bind the company. 

"An agency to execute a mortgage given in this 
fnanner gives no validity to the mortgage. It is not 
the corporation's act, which can only be authorized in 
the mode required by law. "^ * *" 

Duke vs. Markham, 105 N. C, 131. 

Sellers vs. Greer, 172 Illinois, 549, holds that the 
property of a corporation is not subject to the control 
of its members or stockholders, unless expressed in 
prescribed ways, by meetings, etc. 

This case sustains the principle of the legal entity 
of the corporation; its distinct separate existence 
apart from its stockholders. 

"It is held that the act of a majority of the stock- 
holders, expressed elsewhere than at a meeting of the 
stockholders, as where the assent of each is given 
separately and at different times, is not binding on the 



to Private Business Corporations 263 

corporation; the same is true for meeting of which 
notice is not given/' 

Pierce vs. New Orleans Bldg. Co., 9 La., 397. 
Citing, Stowe vs. Wyse, 7 Conn. Rep., 214 (supra) ; 

and note also, 
Cook on Stockholders, sec. 594 ; and, 
Potter on Corporations, sec. 336 ; and note, 
Gashwiter vs. Willis, 33 CaL, 11. 

By way of analogy it may be said that corporate 
powers can be exercised by trustees only when duly 
assembled and acting as a board. 

Gashwiter vs. Willis, 33 Cal., 11. 

Real owner, as opposed to record owner, entitled to 
vote. — Real owner of stock is entitled to represent it 
at meeting, and the mere fact that he does not appear 
on the books as owner will not absolutely preclude him 
from the voting privilege. 

People ex rel Allen vs. Hill, 16 CaL, 113. 

In the opinion, by Mr. Justice Cope, it was said : 

"We think no consequence is to be attached to the 
circumstance that a portion of the stock represented by 
Hill stood upon the books of the corporation in the 
name of Devaue alone. This was prima facie evidence 
that it belonged to the separate estate of Devaue. But 
it was competent for the defendant to show that it 
was, in fact, the property of the partnership." 

'Tt would seem, upon principle, that the real owners 
of stock should be entitled to represent it at meetings 



264 Corporation Law as Applied 

of the corporation and that the mere fact that he does 
not appear as owner upon the books of the company 
should not exclude him from the privilege of doing 
so." 

Ibid. 

The pledgee of stock in a private corporate is not, 
for the purpose of a meeting of stockholders, to be re- 
garded as the owner of the stock. 
McDaniels vs. Flowers Brook Mfg. Co., 22 Vermont, 
274. 

The owner of stock, though he had pledged it, is still 
competent to represent it at corporation meetings, and 
vote as a shareholder, and his action binds the pledgee. 

City of Spokane vs. Amsterdanach, 22 Wash., 172 (60 
Pacific R., 141) ; a recent case (1900). 

The opinion is by Mr. Justice Reavis ; it is both clear 
and convincing, and enters into the subject at length. 

Stock vote as binding as sealed instrument. — In 

Beach vs. Stouffer, 84 App., 395 (Missouri) it was 
held that the act of a corporation evidenced by a vote 
was as completely binding as if done under seal. 

Supervision by court of equity. — "All the powers 
and jurisdiction of a court of chancery over such corpo- 
rations are to be exercised in the ordinary mode in 
which a court of chancery acts, and this power in- 
cludes that of supervising and controlling the election 
of directors, whenever it is made to appear that, by 
means of fraud, violence and other unlawful conduct 



to Private Business Corporations 265 

on the part of a portion of the corporation, a fair and 
honest election cannot be held." 

Opinion cf Paxton, Ch. J., in Tunis vs. Pass., etc., 149 
Pa. St., 70 (1892). 

Illegal votes not necessarily fatal to whole meet- 
ing. — It is held in Pennsylvania, as elsewhere, that 
illegal votes cast at a meeting do not invalidate the ac- 
tion thereof, so long as the illegal votes do not affect 
the result. 
Craig vs. Church, 6 Weekly Notes of Cases, 421 (Sup. 

Ct., 1879) ; and. 
Commonwealth vs. Morrison, 6 Ibid, 346. 

(These cases, however, were not concerning private 
business corporations. ) 

Perpetual voting trust invalid. — A voluntary agree- 
ment among stockholders of a corporation perpetually 
vesting in trustees the right to vote the stock at all 
meetings of the corporation is absolutely void as 
against public policy, and in violation of the Pennsyl- 
vania statute. * * * Even if such giving of rights 
to vote is incident to ownership of stock, it would be 
no more than a proxy-right to trustees, and revocable 
at will. 

Vanderbilt vs. Bennett, 6 Pa. C. C, 193; opinion by 
Stowe, P. J. (1887.) 

This decision concerned a quasi-public corporation, 
i. e., a railroad company. 

In McDaniels vs. Flower Brook Mfg. Co., supra, 22 



266 Corporation Law as Applied 

Vermont, 274, p. 65, it was held by Mr. Justice Red- 
field that every reasonable presumption is to be made 
in favor of the proceedings of a corporation, as is done 
in regard to proceedings in courts of law. 

The above also sustains the general rule as laid 
down, supra, viz. : That to render a meeting of stock- 
holders forceful all the members must have notice of 
some description, and in the absence of prescribed rules 
and regulations in regard thereto, the fact must ap- 
pear that each stockholder had such full and timely 
notification of the meeting and its objects as would 
lead any reasonable man to attend, if the action of 
such meeting might be detrimental to his interest. 

An agreement, for a consideration, of a stockholder 
in a business corporation to vote for a particular per- 
son as manager, is void as against public policy, if 
not cured by the assent of all the stockholders. 
Lees vs. Huttell, 2 Myl. and K., 819. 
Lowther vs. Lowther, 13 Vesey, 95. 
Dunne vs. English, L. R., 18 eq., 524. 
Marsh vs. Whitmore, 21 Wallace (88 U. S.), 178. 
Baker vs. Humpkeys, loi U. S., 494. 
Mott vs. Hamington, 12 Vermont, 199. 
Smith vs. Townsend, 109 Mass., 500. 
Fulton vs. Whitney, 66 N. Y., 548. 
Loniland vs. Clyde, 86 N. Y., 384. 
Everhartvs. Searl, 71 Pa. St., 751. 
Inp.. Merc. Co. vs. Coleman, L. R., 6 H. L., 189. 
Flanagan vs. R. R. etc., L. R., 7 Eq., 116. 
New Simbreco P. Co. vs. Eslager, L. R., 5 C. D., 73. 



to Private Business Corporations 267 

Inequitable or fraudulent acts restrained. — The 
court will not permit directors or majority stock- 
holders, notwithstanding their apparently great and 
extensive powers, to treat the minority stockholders 
inequitably, or to commit fraud upon their rights. 

• The reasons for vacating such contracts increase in 
strength when the agent, from his peculiar position, is 
enabled to exercise peculiar influence over the princi- 
pal, as is the case when a director or an officer of a 
company makes a contract on behalf of the company 
for his own emolument, or a trustee, relied on im- 
plicitly by the cestui que trust, makes an unfair profit 
out of the latter's estate. 

Limits of corporate power. — A leading and often 
cited case regarding corporate powers is Meeker et al. 
vs. Winthrop I. Co., 17 Fed. Rep., 48 (1883). 

In this case Judge Baxter laid down as among the 
rules which have come to be universally adopted as 
sound law, — that the officers of a corporation are but 
agents and cannot, while acting as such, deal with 
themselves, to the detriment of the corporation, even 
when authorized by a majority vote at a stockholders' 
meeting; and that where these facts appear, the bur- 
den of showing fairness, adequacy and good faith rests 
upon the parties claiming title through such corporate 
acts. 

Pendery vs. Carleton, 87 Fed. Rep., 4. 

For fuller treatment of this subject (fairness, etc.), 
see Chapters XVL, XVIL, and the text generally. 



268 Corporation Law as Applied 

Power to contract is limited to the purposes of the 
corporation. 

Utley vs. Clark, etc., Co., 4 Cal., 369. 

Where the directors are vested with corporate pow- 
ers, within their proper sphere, such rights are for the 
time exclusive. * * * The rule as to agency, as it 
respects the constituency, or capital and membership, 
is an important and fundamental point in the govern- 
ment of a body corporate. To change its general scope 
and purpose without the consent of the stockholders 
would be to make them members of an association in 
which they never consented to become such. It would 
change the relative influence, control and profit of each 
member. If the directors alone could do it, they could 
always perpetuate their own power. Their agency 
does not extend to such an act unless so expressed in 
the charter, or subsequent enabling act, and such sub- 
sequent act, as before said, would not bind the stock- 
holders without their acceptance of it, or assent to it 
in some form. 

Railway Co. vs. Allerton, 83 U. S. (18 Wall), 233, 
et seq. 

In another case in the United States Supreme Court 
(1873), Mr. Justice Bradley, in delivering the opinion 
of the court, said : 

''We are satisfied that the decree must be affirmed 
on the broad ground that a change so organic and 
fundamental as that of increasing the capital stock of 



to Private Business Corporations 269 

a stock corporation beyond the limit 'fixed' by the char- 
ter cannot be made by the directors alone unless ex- 
pressly authorized thereto. The general power to per- 
form all corporate acts refers to the ordinary business 
transactions of the corporation, and does not extend 
to a construction of the body itself, or to an enlarge- 
ment of its capital stock. A corporation, like a part- 
nership, is an association of natural persons who con- 
tribute a joint capital for a common purpose, and 
although the shares may be assigned to new individ- 
uals in perpetual succession, yet the number of shares 
and amount of capital cannot be increased except in 
the manner expressly authorized by the charter or 
article of association. Authority to increase the cap- 
ital stock may undoubtedly be conferred by a law 
passed subsequent to the charter, but such a law should 
regularly be accepted by the stockholder. * * * 

''Changes in the purpose and object of an associa- 
tion, or in the extent of its constituency and member- 
ship, involving the amount of its capital stock, are 
necessarily fundamental in their character, and can- 
not, on general principles, be made without the express 
or implied consent of the members." 

Union Gold M. Co. vs. Rocky Mountain Nat. Bank, 2 
Cal., 565; 3 Id., 75. 

The reason for the above is obvious : 

It affects the corporate purposes — the ultimate ob- 
jects of the association — for the sake of which it was 
brought into existence. To change these without the 



270 Corporation Law as Applied 

consent of the associates would be to commit the 
share-owners to an enterprise which their plans never 
embraced, and would be manifestly unjust. The same 
rule appears in Railway vs. Allerton, supra. 

For certain leading authorities on the limitations of 
corporate action, see Chapters XIII. and XV., and the 
text generally, through Index. 

For inherent infringement of the corporate idea, by 
oppressive acts of majority, through merger, etc., see 
Chapters XXII. and XXIIL, and Index. 

In concluding the consideration accorded to the im- 
portant subject of stockholders* meetings in this chap- 
ter, it is necessary in fairness to reader and author 
alike to confess the impossibility of arranging the 
material in every instance in a manner at once orderly 
and consistent with the purpose of this work. 

The particular facts and circumstances of each case 
locate it in connection with its central idea; but in 
order to avoid mutilation of the well-chosen words of 
the learned text-writer or judge, some ideas, more or 
less intimately associated with the context, have often 
been permitted to appear. 

Careful attention to the cross-references in the In- 
dex will always be required to secure the full value of 
the work, including these side-lights upon the subject. 

The cases immediately preceding have shown that 
however great may be the power of stockholders when 
assembled in meetings, — nevertheless that power is 



to Private Business Corporations 271 

subject to the fiat, "Thus far shalt thou go, and no 
farther." 

In the next chapter it will be our duty to endeavor 
to briefly treat of the rights and duties of directors and 
other officers, reserving for the ensuing chapter a like 
mention of the relations of stockholders to one an- 
other. 



272 Corporation Law as Applied 



CHAPTER XV. 
Directors, Officers and Agents. 

Importance of delegated authority. — Infrequency of 
litigation of subject. — Corporation has inherent 
right to appoint. — When appointed, are quasi- 
trustees. — Authority governing directors and offi- 
cers. — Close resemblance of corporate to other 
agents. — Ultra vires principle applied. — Usual 
responsibility coupled with such agency. — Directors 
not insurers of fidelity of others. 

Importance of delegated authority. — It has been 
seen (Chapter IV.) that corporations have an implied 
power to appoint directors. 

Occupants of the office of director are called ''com- 
mittee-men" in the older English cases, and "syndics" 
in the Civil Law. This appellation, "directors," is 
often interchangeable with the word "trustees," just 
as the office itself is often merged in the broader and 
generic relation of trusteeship. 

Whatever the word employed, the thing itself is 
important, since a corporation without directors, offi- 
cers or agents would be helpless ; that is, it would not 
be equipped with the necessary instruments with which 
to carry on its allotted work, and would remain merely 
a powerless identity, — impotent alike for action and 



to Private Business Corporations 273 

for defense. In fine, the very idea and conception of 
a corporation, in its practical essence and effect, de- 
notes a combination or aggregation of individuals 
who place their contributions in a common fund, 
which, in turn, is intrusted to a chosen few selected 
from among their number ; indeed, the very gist of the 
gift from the State, involved in the creation of a cor- 
poration, is the "right of many to act as one," under 
the guidance and direction of a properly constituted 
directorate. The idea and essence of a corporation 
implies ability to delegate such aggregated power. 

Therefore, we may safely say upon the authority of 
the text-books and decisions, ancient as well as mod- 
ern, that a corporation once given life by its creating 
power has the inherent right, power and authority to 
choose, appoint and duly empower such directors, 
officers and agents as may be necessary to carry out 
the purposes and objects for which the charter was 
granted and the corporation instituted. 

Numerous text-writers have carefully treated of the 
subject of the rights, duties, powers and obligations 
of the directors, officers and agents of corporations. 

Infrequency of litigation of subject. — Of these 
rights, etc., some have been the object of judicial in- 
vestigation and interpretation; while many have been 
admitted pro confesso, and have never come before 
any court for deliberation. 

There are certain aspects of the subject, however, 
which it will be found profitable to treat of in this 
connection. 



274 Corporation Law as Applied 

Corporation has inherent right to appoint. — A cor- 
poration being an artificially created body, the power 
which makes and calls it into being can restrict or 
direct the method or manner of its selection of di- 
rectors, etc., and can prescribe rules in regard thereto; 
but in the absence of restrictions or express delim- 
itation, the corporate body, acting through and 
by its stockholders, has the inherent right and power 
in any reasonably proper and equitable manner to 
choose and appoint its directors (who stand toward it 
in a fiduciary capacity), as well as its officers and 
agents; or it may delegate the appointment of such 
officers and agents to a representative board consist- 
ing of its directors. 

The power of the stockholders in the selection of 
the directors and agents, as it is applied in practice, 
is more fully seen in Chapters XIII. and XIV., "Meet- 
ings," — wherein it appears that the right of the major- 
ity to rule is universally adopted and enforced. 

It should, however, be here noted that all thes'e 
rights must be exercised in accordance with the equita- 
ble principle of "fair play," as well as in conformity 
to the laws and Constitution of the creating State and 
of the United States. 

When appointed are quasi-trustees. — The right 
of the corporation to elect its directors, and di- 
rectly or indirectly to select its officers and agents, 
being thus shown, it is important to understand the 
relation which exists between such corporations and 
its stockholders on the one hand, and such directors, 



to Private Business Corporations 275 

officers and agents on the other. By referring to 
Chapter XVIL, "The Fiduciary Relation," it will be 
found, as the result of centuries of litigations involving 
legal ability of the highest order, that it has finally 
been evolved and established that the relation of the 
director toward the stockholder is at least of a quasi- 
fiduciary nature, and that this relation is governed by 
the rules applicable to the trustee and the cestui-que- 
trust. A full and comprehensive knowledge and real- 
izing sense of this fact relieves the situation of many 
of the difficulties and embarrassments which would 
otherwise surround it. This subject, i. e., "The Fidu- 
ciary Relation," is quite fully treated of in Chapter 
XVIL, to which reference has already been made. 

Authority governing directors and officers. — Of the 

acts of directors and officers, it may be recapitulated 
that their conduct must be judged and affirmed or dis- 
avowed by reference to the provisions of the charter 
and by-laws viewed in connection with, — 

{a) The laws and Constitution of the United 
States. 

{h) The laws and Constitution of the parent State. 

{h) The principles of equity applicable to the fidu- 
ciary relationship of the trustee and cestui-que-trust. 

Whatever may be the object, whatever may be the 
surrounding circumstances of the acts of the direct- 
ors or officers, — their proceedings must be approved 
or condemned in accordance with the standard of rela- 



276 . Corporation Law as Applied 

tionship thus established for the purpose by statutory 
enactment and the principles of equity. 

Close resemblance of corporate to other agents. — 
Regarding the agents of the corporation, the laws and 
rules which apply to an agency for individuals apply 
in equal measure to a like relationship toward a cor- 
poration. 

A railroad company may appoint agents for the ac- 
complishments of its purposes, 

Alabama and T. R. R. Co. vs. Kidd, 29 Ala., 221. 

An aggregate corporation has power to appoint and 
employ agents to act for it. 

Hayden vs. Middlesex Turnpike Corp., 10 Mass., 397 
(6 Am. Dec, 143). 

Judge Story, in Bank of Columbia vs. Patterson, 
7th Cranch, 299, held that a corporation might by 
mere vote or other corporate act, not under corporate 
seal, appoint an agent whose acts and contracts, within 
the scope of his authority, would be binding on the 
corporation. 

This case has never been disturbed. 
See also. Kitchen vs. Cape Girardeau and S. L. R. Co., 
59 Mo., 514. 

It is laid down in the text-books on agency that 
a body corporate may be a principal and appoint 
agents, and may also have delegated to it a power to 
act as agent; and such powers are either those specif- 
ically granted, or such as are incident to the objects 
of the relationship and conferred by implication. 



to Private Business Corporations 277 

Ultra vires principle applied. — Perhaps the case of 
most importance and which has been most cited and 
sustained, is 

Jemmison, et al., vs. Citizens' Bank, etc., 122 N. Y., 
135. 

This unanimous decision holds that contracts of cor- 
porations are ultra vires when they involve adventures 
outside of the powers given by their charter ; also, — 

One dealing with a corporation is chargeable with 
notice of its powers, and is bound to know the extent 
of the authority of its agents ; and again, — 

A corporation acting as the agent of an undisclosed 
principal, and so liable as principal, is entitled, when 
this liability is sought to be enforced, to all the rights 
and privileges the law would give to it if, in fact, it 
occupied the position of principal. 

Usual responsibility coupled with such agency. — 

See another leading case to the effect that a corpora- 
tion is liable for its wrongful acts and omissions and 
for the acts of its agents while engaged in the business 
of their agency to the same extent and under the same 
circumstances as natural persons. 
Fishkill Savings Bank vs. National Bank, 80 N. Y,, 
162. 

A corporation, like any natural person, is responsible 
for the acts of its agents. 
Lamm vs. Port Deposit Co., 49 Md., 233. 
Western Maryland R. R. Co. vs. Franklin Butt, 60 
Md., 36. 



278 Corporation Law as Applied 

A comprehensive list of authorities appears in con- 
nection with the foregoing decision (Fishkill, etc., 
Bank vs. National Bank). 

Directors not insurers of fidelity of others. — - Di- 
rectors of a corporation are not insurers of the fidelity 
of the agents whom they appoint, who became by such 
appointment agents of the corporation; nor can they 
be held responsible for losses resulting from the 
wrongful acts or omissions of other directors or agents 
unless the loss is a consequence of their own neglect 
of duty. 

Briggs vs. Spaulding, 141 U. S., 132. 

Reference to the foregoing decisions and the cases 
cited therein will establish the principle that corpora- 
tions may be principals and authorize and duly em- 
power agents; or may be the duly authorized and 
empowered agents of others, provided that the duties 
involved in either capacity are infra vires. 

The intent of this chapter having been confined to 
a somewhat technical treatment of the powers of cor- 
porations in connection with the appointment and con- 
trol of their agents, the reader is advised to consult 
Chapter XVIL, 'The Fiduciary Relation," and the 
text generally through the Index, for proper consid- 
eration of the important effect of those rules when 
applied by the courts in actions for the redress of 
stockholders' wrongs, and the like. 

Having now briefly referred to the salient features 
of agency, we will next turn our attention to the in- 



to Private Business Corporations 279 

teresting subject of the principles and regulations 
which govern shareholders in their relations toward 
one another. 



280 Corporation Law as Applied 



CHAPTER XVI. 
Stockholders Inter-sese. 

A semi-fiduciary relationship sometimes exists. — Courts 
of Equity require fair-dealing. — Discrimination is 
ultra vires. — Mutual responsibility flows from 
implied contract. — One cestui que trust must not 
injure another. — Result of distinction between 
disfranchisement and removal. — Equity is surest re- 
course. — Guilty stockholders equally liable with 
directors. — Difference between joint-stock com- 
panies and corporations. — Legislative intent op- 
posed to oppression. 

A semi-fiduciary relationship sometimes exists. — 

While it has been repeatedly held that stockholders in 
a corporation are not to be deemed trustees, one for 
the other, at the same time the courts have recognized 
a ^wa^f-fiduciary relationship existing between them. 
Probably the clearest and most satisfactory thing 
which has been said in the text-books on the subject 
was by Mr. Beach in his work on Private Corpora- 
tions : 

"While it cannot be laid down as a general rule that 
the members of a corporation occupy a fiduciary rela- 
tion toward one another which forbids all transactions 



to Private Business Corporations 281 

by which any of them may gain an advantage over the 
others, yet there are circumstances under which a quasi- 
trust relation has been held to exist, and where equity 
will interfere, on the one hand, to require an account- 
ing from any member seeking to gain an unfair ad- 
vantage over the whole body of members, and on the 
other, to restrain a majority from over-riding a dis- 
senting minority." 

Beach on Corporations, Chicago, 1891, sec. 70. 

Courts of equity require fair-dealing. — An instance 
where the action of a majority of the stockholders will 
not bind the corporation is shown in 
Farmers' Loan and Trust Co. vs. San Diego Street 
Car Co., 45 Fed. Rep., 518. 

In this case a mortgage was set aside, although the 
action of the directors in making it had been ratified 
at a stockholders' meeting. 

In the course of his opinion, Ross, J., said: 

"A court of equity will not permit the directors of 
a corporation, who are not only trustees for the stock- 
holders of the corporation, but for its creditors as well, 
to thus dispose of the corporate property to themselves, 
or for their individual benefit. However in fact in- 
tended, equity treats such transfers as fraudulent, be- 
cause it operates as a fraud upon the cestuis que 



The proper nature of the conduct of majority stock- 
holders toward the others is shown in 



282 Corporation Law as Applied 

Worth Mfg. Co. vs. Bingham, ii6 Fed. Rep., 785 
(C. C. Apps., 4th Girc, 1892), 

Simonton, Ch. J., Morris and Brawley, D. J. J., per 
Curiam : 

''It must be kept in mind that this is a private cor- 
poration, a business enterprise that is governed by the 
votes of its stockholders ; that they are the judges, and 
the best judges, as to the conduct of their own enter- 
prise, and when the majority adopt, in good faith, a 
line of policy which in their opinion will best subserve 
the interests of the enterprise, the minority must 
yield." 

In 

Barr vs. N. Y., L. E, & W. R. R. Co., 96 N. Y., 450, 
the opinion of Miller, J., is thus stated: 

"It is there laid down, 

"Hawes vs. Oakland, 14 Otto (U. S.), 450,— 
'Where the * * ^ majority of the shareholders 
themselves are oppressively and illegally pursuing, in 
the name of the corporation, a course which is in vio- 
lation of the rights of the other shareholders, and 
which can only be restrained by the aid of a court of 
equity, an action to obtain relief may be maintained 
by a stockholder.' " 

This rule is similar to that which regulates the re- 
lationship of directors who occupy such positions in 
two or more corporations, viz., directors or trustees 
are not permitted to manage the corporation's interest 
for themselves; and though contracts between direct- 



to Private Business Corporations 283 

ors interested in two companies are not necessarily 

fraudulent per se, yet they are regarded with disfavor 

by courts of equity and will be scrutinized. See a long 

line of cases cited in 

Hill vs. Gould, 29 Missouri, 107. 

Vide Taylor on Private Corporations, cited therein. 

The principle that the majority stockholders, while 
they have the legal right to manage and control the 
business and affairs of the corporation by and through 
their voting power, will be required to act fairly, prop- 
erly and without oppression toward the other stock- 
holders, is recognized in Brewer vs. Boston Theater, 
104 Mass., 395,— 

Opinion by Wells, J. : 

"A majority of the corporators have no right to 
exercise the control over the corporate management 
which legitimately belongs to them, for the purpose of 
appropriating the corporate property or its avails or 
income to themselves or to any of the shareholders, to 
the exclusion or prejudice of the others. * ^ * This 
proposition, if stated in reference to formal transac- 
tions, such as assessments of capital, or dividends of 
income, would not be questioned. 
(Citing, Preston vs. Grand D. Co., 11 Sim., 327. 
Hodgkinson vs. Nat. L. S. Ins. Co., 26 Beavan, 473.) 

"But the indirect application of the common prop- 
erty, profits or means of profits, to their own benefit, 
by any portion of the corporators, in fraud of their 
own associates, is equally incapable of being author- 



284 Corporation Law as Applied 

ized, or ratified, by the vote of a majority of the cor- 
porators, or by any act or omission of the corporate 
body. 

(Citing, Gregory vs. Patchett, 33 Beav., 595; 

Atwood vs. Merryweather, supra, 

Law Rep., 5 Eq., 464, note.) 

''Any advantage given to one .class of stockholders 
over others destroys their equity and takes away a 
right which originally existed in it and materially 
varies the effect of each and every outstanding certifi- 
cate of stock. Each certificate represents a right which 
cannot be divested or impaired without the consent of 
the owner, unless the power to do so is in some way 
reserved. Shares of stock are in the nature of choses 
in action, and give the holder a right in the division 
of the profits and earnings of the company, so long as 
it exists, and in its effects when it is dissolved. That 
right is as inviolable as is any right in property, and 
can no more be taken away or lessened against the 
will of the owner than can any other right." 

To the above effect see — 

Spelling on Private Corporations, Vol. II., sec. 598, 
p. 668 (N. Y., 1902). 

Discrimination is ultra vires. — All manner of dis- 
crimination between stockholders is ultra vires. 
Ibid (Spelling), sec. 599, et circ. 

No right to issue preferred stock existed in the com- 



to Private Business Corporations 285 

mon law. It must be sought for in the charter or in 
the statute under which the corporation is formed. 

Ibid. 
''To the relations between members of an associa- 
tion applies with equal fitness the maxim that 'Equality- 
is Equity.' " 

Ibid, sec. 604. 

Stockholders (majority) must not impair the con- 
tract. Every person who becomes a stockholder has a 
right to rely upon the fact that all of the other stock- 
holders are subject to all the obligations he himself 
has assumed. 

Ibid. 

"On principles which have already been fully dis- 
cussed (sec. 71, ante, et seq.), where the governing 
statute provides that when the corporation expires by 
limitation it shall remain a corporation simply for the 
purpose of having its affairs wound up * * * a 
majority of stockholders cannot by a reorganization 
bind the minority so as to continue their property in 
the new corporate venture." 

Thompson on Corporations, Vol. I., sec. 272 (San 
Francisco, 1895). 

There is a distinction between a minority stockhold- 
er's right to have the business carried on, and his right 
to have some other business not carried on. 
See Ibid, Vol. IV., sec. 4443. 

In other words, a minority stockholder cannot, 
against the will of the majority, say that the business 



286 Corporation Law as Applied 

of the corporation shall continue to be carried on; 
but he can, by application to the courts, restrain a 
course of ultra vires acts. 

"Courts of equity, * * * whenever necessary to 
the attainment of justice, will not only view the cor- 
poration as an association of persons mutually inter- 
ested in a common enterprise, but will often look be- 
yond the aggregate to determine individual rights and 
relations, and having done so, will furnish reparative 
or preventative remedies, as the case may require. 
Equity views the relations of the members, both to the 
corporation and to each other, while at law these rela- 
tions are of little importance. * * * 
Spelling on Private Corporations, Vol. II., sec. 541. 

"Individual members can only act in the transaction 
of corporate business at corporate meetings." 
Ibid, sec. 546. 

(See "Meetings," Chapters XIII. and XIV., ante.) 

"Where wrongs by a portion of the shareholders 
have resulted in injury to the common corporate in- 
terest, the remedy lies through the corporation by the 
non-participating shareholders." 

Ibid. 

"The owners of a majority of the stock of a corpo- 
ration, who persuade their implements and representa- 
tives on the board of directors to convey to them the 
property of the corporation for a grossly inadequate 
consideration in fraud of the minority stockholders, 



to Private Business Corporations 287 

must be held to have participated in the fraud of the 
directors." 

Woodroof vs. Howes, 26 Pacific Reports, 11 1 (syl- 
labus). 

(Supreme Court, California, 1891.) 

"The property interest of each member is entrusted 
to the corporate entity for express purposes and no 
others. These purposes are defined in the charter or 
articles, the terms of which become incorporated in 
each contract of membership at the time of signing 
the same. The corporation thereby assumes the rela- 
tion of trustee to each and every member, and becomes 
ipso facto responsible as a trustee whose duty it is to 
faithfully carry out the objects and purposes enumer- 
ated in the instrument by which the duty and relation 
are created. The right to protection and to faithful 
performance to which the shareholder is entitled is 
co-extensive with his property interest in the subject 
of the trust; and the individual interest, and that of 
every other member combined, constitutes the entire 
fund entrusted to the corporate entity." 

Spelling on Private Corporations, Vol. II., sec. 550, 
p. 622. 

"True, all of the members of a corporation acting 
together can release one of their number from his con- 
nection with the corporation; but they must do so in 
the latter's name and right, just as they would convey 
its property." 

Ibid, Vol. II., sec. 57, p. 64. 



288 Corporation Law as Applied 

''It will be found upon examination of all the Ameri- 
can and English authorities to be a settled general 
rule, with rare exceptions, that the act of a majority of 
the directors of a corporation, done within the limit of 
their powers under their constitution, and at a regu- 
larly constituted meeting of their body, is binding 
upon all the corporators." 

Potter on Corporations, Vol. I., sec. 85, p. 129 (Banks 
& Bros., 1879). 

"The rule that one holding a position of trust cannot 
use it to promote his individual interests is now rigidly 
administered in equit}/ by every enlightened nation, 
and especially applies to the action of corporations in 
dealing with their corporators." 

See note to Ibid. 

The foregoing extract sets forth a principle which 
is familiar law, and is treated of herein in Chapter 
XVIL, "Fiduciary Relations" ; but the insertion there- 
of at this place will be found convenient for compari- 
son with the less well-known rule governing the rela- 
tionship of shareholders to one another. 

Mutual responsibility flows from implied contract. — 

"It is a matter of implied contract that the corpora- 
tion shall administer the funds and exercise the func- 
tions according to the provisions and in accomplish- 
ment of the purposes prescribed by the charter. The 
stockholder has distinct individual rights as against 
the corporation, growing out of that relation, which 
he cannot be compelled to yield or forego without his 



to Private Business Corporations 289 

assent. In this respect he is not subject to the will or 
vote of the majority." 

'It is only as to matters within the prescribed limits 
of corporate powers and capacity that he, as a stock- 
holder, becomes, on general principles, subject to the 
vote of the majority. Standing upon those rights, and 
in the exercise thereof, he may at his pleasure, and 
effectually, assent to or dissent from, measures adopted 
by corporate vote in the usual mode." 

Ibid., Vol. I., sec. 88, p. 131, etc. 

*'* * * And the rule seems to be general that be- 
yond the limits of the act of incorporation the will of 
the majority cannot make an act valid; and the power 
of a court of equity may be put in motion at the in- 
stance of a single shareholder, if he can show that the 
corporation are employing their statutory powers for 
th^ accomplishment of purposes not within the scope 
of their institution." 

Ibid., sec. 92. 

As neither the State nor the General Government 
can transcend the powers conferred upon them by 
their several Constitutions, so a corporation, acting by 
the grant of either, must, of course, be bound by the 
supreme law which limits even the power which cre- 
ated it a corporation. 

One cestui que trust must not injure another. — In 
Davoue vs. Fanning (2 Johns Ch., 252), supra, 
the question of the majority and minority of cestuis- 



^QO Corporation Law as Applied 

que-trustent was considered, and Chancellor Kent said, 
ibid. J 259 : 

''One cestui que trust has no power to control or 
give away the rights of another." 

By parity of reasoning, a majority of stockholders 
cannot compound, ratify or legalize the fraud or 
wrong-doing of one or more directors (who are, as 
we have seen, quasi-ixusitts) , where the interests of a 
single stockholder, however insignificant his holdings, 
may be damnified. 

Angel and Ames on Corporations (Little, Brown & 
Co., Boston, 1875, loth Edition), sec. 333, etc., 
and note at p. 401, — 

quoted in 

Land Grant Ry. Trust Co. vs. Comm'rs of Coffee Co., 
6 Kansas, 245. 

Result of distinction between disfranchisement and 
removal. — There exists a distinction between the 
terms "disfranchisement" and "removal," when oc- 
curring in the decisions and authorities which treat of 
stockholders' rights. 

The former is applicable to a stockholder as a mem- 
ber of the body corporate ; the latter relates to members 
as its officers. 

The result which flows from the exercise of each 
species of disciplinary power points out the difference, 
viz. : An officer may be removed and still exercise his 



to Private Business Corporations 291 

rights as a member ; while a member who has been dis- 
franchised may not exercise his former rights, etc., etc. 
- Angel and Ames, sec. 408, supra. 

Where the ancient rule has been abrogated (as in 
New York), and a director is not of necessity a stock- 
holder, this principle does not apply, — though we are 
far from advocating such excess of liberality in corpo- 
rate legislation. 

* 'Every man who becomes a member looks to the 
charter; and in that he puts his faith, and not in the 
uncertain will of a majority of the members." 
Ibid., sec. 414. 
The above passage is quoted from opinion of Chief 
Justice Tighman in 

Commonwealth vs. St. Patrick's Co., 2 Binn, 441 
(Pennsylvania). 
^'Stockholders may so conduct themselves as to be- 
come responsible for corporate debts.'* 
Waterman on Corporations, Vol. II., sec. 275, p. 416, 
et cet, 

A member of a corporation who disposes of his 
interest to an insolvent to escape liability will be held 
liable. 

Ibid., sec. 275. 

In this regard, there seem to be two principles in- 
volved : one, that the transfer was a fraud on the cred- 
itor; the other, that it was equally a fraud upon the 
transferer's co-stockholders, who would, in case such 
transfer was successfully made, have to bear just so 



292 Corporation Law as Applied 

much more of the burden of insolvency. Equity dis- 
approves of acts like these. 

Equity is surest recourse. — "The shareholders in a 
corporation are by the implied terms of their charter 
entitled to equal rights, unless the contrary be ex- 
pressly provided. If the agents of the company at- 
tempt to discriminate against individual shareholders, 
or to deprive them of their rights of membership, the 
parties aggrieved may sue for relief in equity. Under 
these circumstances the only remedy is in equity, since 
the courts of law do not, as a rule, recognize the con- 
tractual relation between the members of a corpora- 
tion and the individual rights resulting therefrom." 

Morawetz (2d Ed.), Vol. I., sec. 279, p. 264, 

While it is not wholly parallel and relevant, it may 
be useful by way of comparison to revert again to the 
stricter rule governing the acts of directors, viz. : The 
directors of a corporation are its pecuniary agents and 
trustees; that relation requires of them "the highest 
and most scrupulous good faith." They cannot ac- 
quire an interest directly or indirectly ''adverse to the 
corporation, if they, taking advantage of their knowl- 
edge and position, make even an advantageous bar- 
gain in the purchase of claims against the corporation ; 
the profits thus made will be treated as held in trust 
for the company." 

Ryder vs. L. A. & N. W. Ry., 21 Kan., 365 (a leading 
case). 



to Private Business Corporations 293 

Guilty stockholders equally liable with directors. — 

Referring to the duties of stockholders inter sese^ the 
Court said, per Chief Justice Norton : 

"In this connection we may properly remark that if 
persons other than directors and officers of the corpo- 
ration participate with them in their fraudulent and 
illegal transactions, with full knowledge of all the 
facts as is alleged, they are equally liable w4th the 
faithless agents and officers." 

Ibid., p. 399. 

The same principle controlling the fiduciary relation 
is again referred to in the following : 

"As a general rule, a corporation is not affected by 
the personal rights and obligations and transactions 
of the shareholders who form the corporation. Yet 
this rule cannot be applied blindly; a court of equity 
will look beyond the technical doctrine whenever this 
becomes necessary to do justice between the parties." 
Morawetz, sec. 229, etc. 

"To justify the interference of the court with the 
management of a corporation on the application of a 
minority of the stockholders, it must be shown that 
the action of the governing body complained of has 
been so clearly against the interests of the minority of 
the stockholders as to amount to a wanton and fraud- 
ulent destruction of the rights of such minority, and 
that such action is a clear, substantial and flagrant vio- 
lation of those rights." 

Hart vs. Ogdensburg and L. C. Ry. Co., 89 Hun. 
(N.Y.),3i6, 



294 Corporation^^Law as Applied, 

citing, among other cases, 

Gamble vs. Queens County Water Co., 123 N. Y., 92. 
Twin Lick Oil Co., vs. Marbury, 78 N. Y., 159. 
Kent vs. Quicksilver Mining Co., 91 W. S., 587. 

The fact that a corporation has ceased doing busi- 
ness does not relieve directors, etc., from their duties 
and obligations. See, — 
Matly vs. Sampson^ et al., 64 N. Y. App. Div., p. i. 

The relations between stockholders inter sese, is 
shown to a certain extent in 

Aspinwall vs. Torrance, i Lansing (N. Y.), 381 : 

"A stockholder who has been compelled to pay the 
debt of his corporation may have an action of contri- 
bution against the remaining stockholders who were 
originally liable with him for the same." 

In regard to the rule that one stockholder is entitled 
to relief, the same as many, the following case might 
appear on a superficial reading to be opposed to the 
proposition ; but more careful inspection will show that 
the learned justice sought to protect the equitable 
rights of majority and minority interests alike. 
Drake vs. The N. Y. Suburban Water Co., 36 N. Y. 
App. Div., 275 ; opinion by Mr. Justice Cullen. 

The instances in which oppression may occur are 
too manifold for mention in this connection; and the 
subject of redress for such wrongs will not be referred 
to here. 

For treatment of these vital phases of the general 
theme, see Chapter XIX., "Stockholders' Rights and 



to Private Business Corporations 295 

Wrongs," and Chapter XXL, 'The Remedies," to- 
gether with matter in text generally, per Index. 

Difference between joint-stock companies and cor- 
porations. — Regarding the difference between joint 
stock companies and corporations see — 

" * * "^ an original and inherent difference (exists) 
between the corporate and joint-stock companies known 
to our law which legislation has somewhat obscured, 
but has not destroyed, and that difference is the one 
pointed out by the learned counsel for the respondent, 
and which impresses me as logical and well supported 
by authority. It is that the creation of the corpora- 
tion merges in the artificial body and draws in the 
individual rights and liabilities of the members, while 
the organization of a joint-stock company leaves the 
individual rights and liabilities unimpaired and in full 
force. The idea was expressed in 
Supervisors of Niagara vs. People, 7 Hill (N. Y.), 

312, 
and in 

Gifford vs. Livingston, 2 Denio (N. Y)., 380. * * * 
''the individual liability of the members, as it would 
have existed at common law, is lost by their creation 
into a corporation, and exists thereafter only by force 
of the statute, upon some new and modifying condi- 
tions, to some partial or changed extent, and so far 
preventing, by the intervention of an express command, 
the total destruction of all individual liabilities, which 
otherwise would flow from the inherent effect of the 



296 Corporation Law as Applied 

porate creation. ^ * "^ the legislative intent is still 
to preserve and not to destroy the original difference 
between the two classes of organizations." 
People et al. Winchester vs. Coleman, 133 N. Y., 279. 
Opinion by Finch, J. 

Joint-stock companies, as a means of combination, 
have become antiquated and fallen into deserved dis- 
use. They no longer can be said to exist outside of 
the statute. 

While the distinction referred to in the preceding 
cases has an historical interest, it does not concern us 
especially at this time, and will not be given further 
consideration. 

Legislative intent opposed to oppression. — Revert- 
ing to the subject generally, it may be assumed that 
the legislature, i. e., the people acting in their sover- 
eign capacity, will never advertently clothe the major- 
ity of an aggregation with the right to oppress the 
minority ; hence the exercise of such a power implies a 
misconstruction or a perversion of the chartered rights. 

This is the rule and principle we have sought to 
illuminate by the authorities contained in the fore- 
going chapter. It may and should be invoked when- 
ever and wherever majorities in corporations seek to 
benefit themselves at the expense of the minority, and 
to misuse the power conferred by the State at their 
creation. 



to Private Business Corporations 297 



CHAPTER XVII. 

The Fiduciary Relations. 

A much-debated question. — The principle at last estab- 
lished. — Director occupies a fiduciary position. — 
Elements of doctrine stated. — Lord Hardwicke 
quoted. — A leading modern case to same effect. — 
Rule in Federal Courts. — Other leading cases. — 
Courts protect weaker from stronger. — Canadian 
authority. — Recent English case. — Rule as mod- 
ified in application. 

A much debated question. — For many years there 
has been, both in this country and in Great Britain, a 
constant discussion of the question whether the direct- 
ors of corporations are trustees. 

It has been treated of by the ablest jurists in various 
phraseology and from various standpoints. 

While the consensus of opinion is in favor of the 
general proposition, there are many by-paths of this 
subject which remain untrodden; and in this connec- 
tion the insurance litigation now pending in the courts 
of New York will tend greatly to the delimitation of 
the degree of responsibility which the director as- 
sumes when he undertakes to represent a corporation 
in that capacity. 



298 Corporation Law as Applied 

From what has been said and recorded in the reports 
and in the works of numerous text-writers, we are 
justified in asserting that by the rule as now estab- 
lished the directors of a corporation, while not tech- 
nically trustees, yet occupy such a fiduciary relation as 
to entitle them to be styled gwa^f-trustees ; so that the 
principles, rules and doctrines which govern the acts 
of trustees in their dealings with or concerning their 
trust estates apply within certain limitations to the 
dealings of directors with their corporation, its prop- 
erty and stockholders. The foregoing is a proximate 
definition of the situation as it exists to-day. 

The principle at last established. — It may well be 
noted here that this crude delimitation of the province 
of the director has become firmly established only 
after almost interminable litigation. The history of 
corporate litigation shows that time and again after 
the apparent establishment of a recognized standard, 
the question has become redivivus, and positions 
founded on what seemed unimpeachable authority 
have been the object of renewed assaults. In some 
instances opinions were recorded which temporarily 
disturbed the principle above enunciated; but by the 
grand consensus of opinion of those of best authority, 
as has been said and as it would now seem, — this rule, 
principle and doctrine is at length settled and estab- 
lished. 

Director occupies a fiduciary position. — "A director 
of a corporation is the agent or trustee of the stock- 



to Private Business Corporations 299 

holders, and as such has duties to discharge of a 
fiduciary nature toward his principal and is subject to 
the obligations and disabilities incidental to that rela- 
tion." 

Cumberland Coal Co. vs. Sharman, etc., 30 Barb. 
(N. Y.), 553 (a leading case). 

Whether in a strict sense a director of a corporation 
is to be called a trustee or not, there can be no doubt 
that his character is fiduciary. 

Hoyle vs. Plattsburg R. R. Co., 54 N. Y., 314. 

A trust by implication is created in favor of the 
stockholders. 

See opinion of Lord Justice Blackburn in 
Taylor vs. Chichester, etc., Ry. Co., L. R. 2, Exc, 

356, 378. 
Russel vs. Wakefield, etc., Ry. Co., L. R. 20 Eqr., 

474, 479. 
Directors are trustees. 
Robe vs. Dunlap, 6 Dick (50 N. J. Eq.), 40, 
Rural Homestead Co. vs. Wilds, 9 Dick (54 N. J. 

Eq.),668. 
Guild vs. Parker, Receiver, etc., 14 Vroom (N. J.), 

430, 
and various New Jersey cases therein cited. 

The directors of a corporation, while not technically 
trustees thereof — as the title of the corporate property 
is vested in the corporation itself — are charged with 
the duties of trustees, and are bound to care for the 



300 Corporation Law as Applied 

property and manage its assets in good faith, and for 
a violation of the duty resulting in waste of assets, 
injury to its property, or unlawful gain to themselves^ 
they are liable to account to the corporation or to its 
representatives, the same as ordinary trustees. 
Bosworth vs. Allen, i68 N. Y., 157. 

Directors of a public company (corporation) are 
trustees for the stockholders, and their private inter- 
ests must yield to their public duty whenever conflict- 
ing. 
In re Cameron's vs. Coalbrook, etc., Ry. Co., ex 

parte ^txmtit, 18 Beavan, 339; affirmed 24 L. J. 

Ch., 130. 

In the foregoing noted English case the Master of 
the Rolls said: 

"I look upon the directors of a company as trustees 
for the shareholders, and it is in that character and 
quality that they accept their office, with all its corre- 
sponding duties and liabilities. It sometimes happens, 
and it does so peculiarly in this case, that directors 
have individual interests conflicting with their duties 
as trustees of a company. In such cases they are 
bound to consider, before they accept the oflice of 
directors, whether they are prepared to make their 
duties, as directors, predominate over their personal 
interests as creditors or otherwise, and to make them 
subordinate to their duties and liabilities as trustees." 

The directors of a company are trustees and have 
attached to them, for the benefit of the shareholders, 



to Private Business Corporations 301 

the liability and duties which attach to trustees and 

agents. 

The Great Luxembourg Ry. vs. Maguay, 25 Beavan, 

586. 

A director for a company is also a trustee for it. 
Ex parte Larking, re Imp. Land Co. of Marseilles, 46 
L. T., 235; S. C, L. R. 4 Ch. Div., 566. 

Directors are regarded as trustees. 
Mutual Building Fund, etc., vs. Bosseinx, 3 Federal 
Rep., 817. 

The officers and directors of corporations are trus- 
tees of the stockholders, and must not secure to them- 
selves advantages not common to all the stockholders. 
Corbett vs. Woodward, 5 Sawyer (U. S.), 403 (9th 
Circuit, Oregon, 1879). 

Elements of doctrine stated. — A leading and often 
cited case is 

Meeker vs. Winthrop Iron Co., 17 Fed. Rep., 48. 

This was in the United States Circuit Court, Mich. 
(1883), opinion by Judge Baxter; and in it were laid 
down the rules which have been universally adopted, 
namely : 

First. — That the officers of a corporation are but 
agents and cannot, while acting as such, deal with 
themselves to the detriment of the corporation for 
which they act. 

Second. — That even a majority vote at a stockhold- 
ers' meeting cannot lawfully authorize its officers to 
lease its property to themselves or to another corpO' 



302 Corporation Law as Applied 

ration formed for the purpose and owned exclusively 
by them, unless such lease is made in good faith and 
is supported by an adequate consideration. 

Third. — That the burden of showing fairness, ade- 
quacy and good faith is upon the parties claiming 
under such lease, etc. 

To the same effect see 

Potter on Corporations, sees. 85-88. 

A director in a corporation is in a fiduciary position 
toward the company. 
Imperial Credit Co. vs. Coleman, L. R. 6, K. L., 189 

(1891). 

Directors occupy fiduciary relation to stockholders. 
Koehler vs. Black Falls Iron Co., R. F. 2, Black 

(U.S.), 715- 

Thomas vs. Brownville, T. K. Ry. Co., 109 U. S., 522. 

"I look upon it as clear that all corporations are 
trustees for the individuals of which they are com- 
posed, and that those who act for the corporation and 
conduct its affairs are trustees for the corporation and 
cannot appropriate the corporation funds to their indi- 
vidual advantage to gratify their passions, or to serve 
any other purposes than those for the general interest 
of the corporations and its creditors." 

The foregoing statement of the proposition is by 
Sir William Blackstone : 

I Blackstone's Commentaries, 477. 

Persons who from time to time exercise the corpo- 
rate powers may, in their character of trustees, be 



to Private Business Corporations 303 

accountable to a court of chancery for a fraudulent 
breach of trust, etc., etc. : 

Opinion of Chancellor Kent in 
Attorney General vs. Utica Insurance Co., 2 Johnson's 
(N. Y.), Chancery R., 371. 

Lord Hardwicke quoted. — The Father of Equity, 
Lord Hardwicke, said: 

"I take the employment of a director to be of a 
mixed nature; it partakes of the nature of a public 
office, as it arises from the charter of the Crown. 
* * * Therefore committeemen (directors) are most 
properly agents to those who employ them in trust 
and who empower them to direct and superintend the 
affairs of the corporation." 

The Charitable Corp. vs. Sir Robert Sutton and others 
(Case 269, August 13, 1742) ; 2d Atkyns, p. 400. 

This interesting early case deserves, and will repay, 
careful attention. 

See: 

Domat's Civil Law, 2 B. T. 3, sec. i and 2. 

Directors are trustees in their relation to the corpo- 
rate body. 

See 
Cumberland Coal and Iron Co. vs. Parish, 42 Md., 

598, 605. 
wherein Alvey, J., says : 

"The affairs of corporations are generally entrusted 
to the exclusive management and control of the board 



304 Corporation Law as Applied 

of directors, and there is an inherent obligation implied 
in the acceptance of such trust, not only that they will 
use their best efforts to promote the interests of their 
shareholders, but that they will in no manner use their 
positions to advance their own individual interest as 
distinguished from that of the corporation, or acquire 
interests that may conflict with the fair and proper 
discharge of their duty." 

A leading modern case to same effect. — The well- 
known case of 
The Farmers' Loan and Trust Co. vs. Trustees of the 

N. Y. and N. R. Ry. Co., 150 N. Y., 410, 
holds that when the majority of the stock of a corpo- 
ration is owned by another corporation and the latter 
assumes the control of the business and affairs of the 
first corporation, through its officers and directors, 
it assumes the same trust relation to the minority- 
stockholders of the controlled corporation that a cor- 
poration usually bears to its stockholders; and when 
it appears that it has made use of such trust relation 
to secure or promote some selfish intent, ''it is enough 
to set a court of equity in motion and to require the 
majority-stockholding corporation to explain such a 
transaction.'* 

Rule in Federal Courts stated. — Contracts made by 
directors with themselves or those with whom they 
stand in confidential relations, which appear directly 
or indirectly to inure for their own benefit, will not 
be enforced. 



to Private Business _C or porations 305 

McGourkey vs. Toledo and O. C. R. Co., 146 U. S., 
536 (1893). 

ii'jf ^ * and any management by which directors of 
a corporation become interested adversely to such cor- 
poration in contracts v^ith it * "^ * or become par- 
ties to any miderstanding to secure to themselves a 
share in any transactions to which the corporation is 
also a party, is voidable at the election of the corpora- 
tion or by the party whose rights are sacrificed." 

Ibid. 

The case of McGourkey vs. Toledo, etc., above cited, 
is one of the greatest importance and merits a careful 
examination in connection with the subject. It is 
reported in 36 Lawyers' Annotated Rep., 80 (Roches- 
ter, N. Y.), with copious notes. 

Other leading cases. — The fiduciary relation exist- 
ing between directors and stockholders is recognized in 

Mclntyre vs. Ajax Mining Co., 17 Utah, 213; 
where it is held that this rule does not affect the right 
of directors to purchase stock from the shareholders 
so long as there is no active misleading on the part 
of the directors. 

Haarstick vs. Fox, 9 Utah, no; affirmed 156 U. S., 
674. 

In this case (Haarstick vs. Fox), Miner, J., says: 

"He (the director) is entitled to the benefit of his 
facilities for information. There is no confidential 
relation between him (the director) and the stock- 
holder, so far as a sale of stock between them is con- 



306 Corporation Law as Applied 

cerned ; and as long as he remains silent, and does not 
actively mislead the person with whom he deals, the 
transaction cannot be set aside for fraud." 
(Citing, Gillett vs. Bower, 23 Fed. Rep., 625; 
Morawetz on Corporations, sec. 565 ; 
Deaderick vs. Wilson, 8 Baxter [Tenn.], 108; 
Comm'rs of Tippecanoe County vs. Reynolds, 44 Indi- 
ana, 509; 

Carpenter vs. Danforth, 52 Barb. [N. Y.], 581; 2 
Pom. Eq. Jur. Prud., 902-4; 

Allen vs. Gillett, 127 U. S. Sup. Ct, 589). 

Referring again to the case of 

Mclntyre vs. Ajax Mining Co., — 

Mr. Justice Bartch said therein, with the concurrence 
of the full bench : 

*'In such case the acts of directors, because of the 
fiduciary relation existing between the officers and 
stockholders, will be closely scrutinized in equity and 
the directors held to a strict measure of care, duty, 
fidelity and disability. 

"Honest and faithful administration of corporate 
affairs, and the fidelity of the trustee to the cestuis que 
trustent, are what the laws aim at; and directors of a 
corporation will not be permitted to gain a pecuniary 
advantage over the stockholders because of their offi- 
cial position and consequent superior knowledge of 
the affairs of the company." 



to Private Business Corporations 307 

(Citing, Twin Lick Oil Co. vs. Marbury, 91 U. S., 

587. 
Peabody vs. Flint, 6 Allen [Mass.], 52. 
People ex rel Plugger vs. Township B'd of Overysell, 

II Mich., 222). 

Courts protect weaker from stronger. — In 

Fisher vs. Bishop, 108 N. Y., 250, 
it is said there is — 

"No branch of equity jurisprudence where the 
court is more ready to exercise its powers, than in 
protecting the 'weaker' from the 'stronger.' " 

Lord Eldon, in 

Gibson vs. Jeyes, 6 Vesey, 266, 
said it is the great rule, wherever fiduciary relations 
exist, that the trustee is invariably the stronger and 
the cestui que trust the weaker; for the strength is 
largely in the knowledge which the trustee has of all 
his own doings; the cestui que trust is weak, because 
ignorant. 

The same principle and rule of law which obtains 
in this country generally is also well sustained in our 
Territory in the Pacific: 

In the case of 

Bolte vs. Bellins, 15 Hawaiian Reports, p. 151 
(1903), 
the court, Chief Justice Frear, with Galbraith and 
Perry, J. J., sitting, held that 

"Directors stand toward the corporation in the re- 
lation of trustees to a cestui que trust, and when they 



^08 Corporation Law as Applied 

vote to themselves salaries or other compensation it 
cannot be allowed to stand unless shown to be fair and 
reasonable. h« * * 

"Directors can no more use the property of their 
principal for their own private gain than any other 
agent or trustee; they must act in good faith and for 
the interests of the stockholders they represent." 

* * '*' The burden of proving bona fides in such 
transaction is with the directors. 

Ibid. 

It has been abundantly shown that dealings of di- 
rectors of joint stock corporation with the subject- 
matter of their trust is viewed with jealousy by the 
courts. 

The general doctrine is that such contracts are void- 
able. There are cases where such contracts are void 
ab initio, as when an agent-to-sell buys for himself. 
Twin Lick Oil Co. vs. Marbury, 91 U. S., 587, 589. 

Canadian authority. — The fiduciary relationship 
existing in corporation matters is supported by the 
opinion of Sir Henry Strong, Ch. J., in 
Edgar vs. Sloan, XXIII, Canada Sup. Court Reps., p. 
644. 

Recent English case. — This fiduciary relation has, 
at a comparatively recent date, been strongly supported 
in England. 

See Alexander vs. The Automatic Tel. Co., Ltd., Vol. 
XVL, The Times Law Rep., p. 339. 



to Private Business Corporations 309 

This case was an appeal, and was before Lindley, 
Master of the Rolls, and Rigby and Vaughan Will- 
iams, Lords Justices. 

The court said: 

'The Court of Chancery has always exacted from 
directors the observance of good faith toward their 
shareholders and toward those who take shares from 
the company and become co-adventurers with them- 
selves and others who may join them. The maxim, 
caveat emptor, has no application to such cases, and 
directors who so use their powers as to obtain bene- 
fits for themselves at the expense of the shareholders, 
without informing them of the fact, cannot retain 
those benefits, and must account for them to the com- 
pany, so that all the shareholders may share alike. 
Gilbert's case (L. R. 5, Ch. 559), is only one of many 
instances illustrating this principle.'^ 

It is submitted that the foregoing is a clear and con- 
cise statement of the equitable rules obtaining in such 
cases. And it may be permitted to observe here, with 
feelings of wonder mingled with regret, that colossal 
fortunes have been carved out and built up by manipu- 
lation of corporate interests, properties and funds in 
the very face of such existing rules, principles and 
doctrines. That such things have been frequent in the 
past must have arisen from one of two facts, — either 
an ignorance of the law, or an indisposition to ask for 
its application. 

Rule as modified in application. — Directors of a 



310 Corporation Law as Applied 

corporation are required only to exercise ordinary 
diligence in the management of the affairs of the cor- 
poration, and are not liable for losses sustained on 
account of their honest mistakes of judgment. 
Spering's Appeal, 71 Pa. St., 11(1872), Sharswood, J. 
Watt's Appeal, 78 Pa. St., 370 (1874), Gordon, J. 
Thomson's Appeal, 11 W. N. C. (Pa.), 414 (1879), 
Paxon, J. 
In Spering's Appeal the syllabus is — 

1. Directors in a stock corporation are not techni- 
cal trustees, but are as mandatories, and are bound to 
apply no more than ordinary diligence and skill. 

2. Directors are not liable for mistakes of judg- 
ment although so gross as to appear absurd, if hon- 
est and within the scope of their powers; especially 
where acting under direction of legal counsel. 

3. Directors are responsible to the stockholders for 
losses from fraud, embezzlement, wilful misconduct, 
breach of trust, gross inattention or negligence by 
which fraud has been perpetrated by agents, officers or 
company directors. 

The opinion of Mr. Justice Sharswood is, in part, as 
follows : 

"It seems unnecessary to pursue this investigation 
any further. These citations, which might be multi- 
plied, establish, as it seems to me, that while directors 
are personally responsible to the stockholders for any 
losses resulting from fraud, embezzlement or wilful 
misconduct or breach of trust for their own benefit 



to Private Business Corporations 311 

and not for the benefit of the stockholders, for gross 
inattention and negUgence by which such fraud or mis- 
conduct has been perpetrated by agents, officers or co- 
directors, yet they are not hable for mistakes of judg- 
ment, even though they may be so gross as to appear 
to us absurd and ridiculous, provided they are honest 
and provided they are fairly within the scope of the 
powers and discretion confided to the managing body.'' 
(Citing, The Charitable Corporation vs. Sutton, supra 

p. 

The Great Luxembourg Ry. Co. vs. Magna, supra p. 

Ex parte Bennett, i8 Beavan, 339). 
The case also cites 

Lewin on Trusts, sec. 595. 

Notwithstanding this modification of the rule, which 
otherwise would be too rigid for practical application, 
the later decisions, as we have seen, confirm the posi- 
tion so resolutely assumed in those early cases; and 
this union of correct reasoning with the loftiest equi- 
table principles has produced its offspring, as it were, 
in the ''Rights" which will be considered in a later 
place (Chapter XIX.), and, indeed, will enter largely 
into the remainder of this work. 



312 Corporation Law as AppUed 



CHAPTER XVIII. 
Inspection of Books and Papers. 

Discussion of principles on which right is based. — 
Inspection an incidental and common-law right. 
— Includes right to make copies. — Receivership 
not ground for refusal. — Promotion of ulterior 
purpose through inspection not favored. — Man- 
damus proper remedy for refusal of right. — Recent 
decisions confirmatory of the text. 

Discussion of principles on which right is based. — 
Among the various rights pertaining to stockholders 
as such, nothing, perhaps, is of more moment than therr 
right to inspect the books and papers of their corpora- 
tion, and thus to inform themselves of what the officers 
and agents of the company are doing with the prop- 
erty. 

Secret business methods, like secret tribunals, have 
always been distasteful to the Anglo-Saxon race. 

Both the common law and the universal trend of 
opinion incline to permit men to know what is trans- 
piring with their interests, even where their ownership 
is only in part. 

See the very recent decision of the U. S. Supreme 
Court, of which mention is made at close of this 



to Private Business Corporations 313 

chapter; also, like reference to similar decision in Fed- 
eral Court in Missouri. 

As will be seen, the common law favors the right of 
a stockholder to examine the books and papers of the 
corporation of which he is a component part; and to 
keep himself informed as to all its transactions, be- 
cause they and each of them affect his interests. Yet 
it must be remembered that while he (the individual 
stockholder) is thus entitled to investigate in his own 
right, the maxim sic titer e tuo ut alienum non Icedas 
nowhere more fittingly applies. To afford to the 
stockholder the unlimited right at all times to inspect 
and examine the books and papers of his corporation, 
and to know all of its business, in most instances would 
so cripple and impair the business-workings of the 
corporation as to entail serious if not fatal damage to 
its affairs. 

Again, it is to be noted that the right to inspect 
books and papers may, to a certain extent, be waived 
by the stockholder; that privilege being one which 
may be restricted by rules and by-laws assented to or 
acquiesced in by the stockholder, at the inception of 
the relation. 

From the general trend of opinion, however, it is 
to be plainly seen what the general rule governing the 
situation is, viz. : That having due regard for corporate 
rules and regulations on the one hand, and the com- 
mon-law rights on the other, the courts will sustain the 
right of the stockholder to inspect the books and papers 
of the corporation within reasonable restrictions as to 



314 Corporation Law as Applied 

time, etc., when such stockholder shows to the court 
a just and sufficient reason why such inspection should 
be had. And it will be found generally that in the 
Federal and various State Courts (excepting one State 
[New Jersey], where minority rights of recent years 
are largely ignored) the practice and rule is as above 
set forth. It should be mentioned in that connection, 
however, that this right and privilege is not to be 
exercised or enjoyed by the stockholder for the benefit 
of third parties, or from caprice, or for mere idle curi- 
osity ; but only for the personal benefit of such enquir- 
ing stockholder. This rule has been repeatedly laid 
down in nowise uncertain language, and is settled law. 

The right and privilege of inspection of books and 
papers and documents, as an absolute common-law 
right, — which it primarily is, — includes the right to 
copy or take memoranda of the same, either personally 
or by a duly authorized attorney or agent. 

The rule is substantially the same in the text-books 
and the decisions. 

See 
Clark and Marshall, Vol. II., sec. 530-1, p. 1646; also 
Cook on Corporations, Vol. II., sec. 511, etc. 

Inspection an incidental and common-law right. — 

In Thompson's Commentaries, sec. 447, the pervading 
principle is thus stated : 

"One of the privileges incident to ownership of stock 
in a corporation is that of an inspection of the books 
and condition of the company, and this privilege in 



to Private Business Corporations 315 

general becomes a right when the inspection is sought 
at proper times and for proper purposes. In England 
and in many of the United States this right has been 
guaranteed by statute, and these statutes are. generally 
regarded as merely an affirmance of the common law." 

Also see Angel and Ames on Corporations, sec. 68 1 : 

''A stockholder in any joint stock corporation is 
entitled during the usual hours of business not only 
to inspect the books in which transfers of stock are 
registered, and the books containing the names of 
stockholders, but also to take a copy or memorandum 
of the names of the stockholders. 

''A stockholder has the right at common law to in- 
spect the books of his corporation at a proper time 
and place, and for a proper purpose. >k * >i< * 



'The common-law right of the stockholder, with 
reference to the inspection of the books of his corpora- 
tion, still exists in the State (New York), unimpaired 
by legislation; and the Supreme Court has power, as 
part of its general jurisdiction, to enforce the rights 
in its sound discretion, upon good cause shown." 

Matter of Steinway, 159 N. Y., 250; affirming 31 
App. Div., 70. 

The books and papers of a corporation are not the 
property of the directors or officers of the company, 
but are the common property of the stockholders, in 



316 Corporation Law as Applied 

which each individual stockholder has a distinct and 
inviolable interest. 

See 
Huyler vs. Cragin Cattle Co., 40 N. J. Eq., 392; 
Commonwealth ex rel Seller vs. Phoenix Iron Co., 105 

Penn. State Reps., 1 1 1 ; 
Cockburn vs. Union Bank of Louisiana, 13 La. Ann. 

Rep., 289-290. 

The foregoing cases are approvingly referred to by 
Mr. Judge Vann in his opinion in Matter of Steinway, 
supra. 

That case in turn was cited by Chief Judge Parker, 
in Matter of Fitch, 160 N. Y., 87 : 

"Again, a situation might have been presented dur- 
ing the period of administration, where the executor 
would have deemed it his duty to apply to the Su- 
preme Court to exercise its general jurisdiction in 
behalf of the stockholders' common-law right of in- 
spection of the books of the corporation, as was done 
in the Matter of Steinway, 159 N. Y., 250." 

For further approval of the rule laid down in Mat- 
ter of Steinway, see — 

In re Pierson, 44 App. Div. (N. Y.), 215; 
opinion by O'Brien, J., all concurring. 

Spelling on Private Corporations, sec. 655, etc. (Ed. 
1892) ; and cases cited. 

See in this connection, — 



to Private Business Corporations 317 

Chable vs. Nicaragua Canal Construction Co., 59 Fed. 
Rep., 846 (Southern District of New York, 
1893). 
In this leading case, La Combe, J., said : 

"The right of an individual stockholder to obtain 
from the court an inspection of the books in the 
court's custody, in order to inform himself as to past 
transactions and present conditions, or to enable 
him to determine what may be most conducive to 
the protection of his own interests as a stockholder 
in the future, is one entitled to the favorable consid- 
eration of a Court of Equity." 

In the United States a shareholder in a corporation 
has the right, under proper safeguards, to inspect the 
books of the concern, unless the charter and by-laws 
otherwise provide. 
Ranger vs. Champion Cotton Press Co., 51 U. S., Fed. 

Reps., 61, etc. 

A case which has been much quoted in reference 
to the above subject is, 

Legendre vs. The New Orleans Brewing Association, 
45 La. Ann. R., 669, — 

holding substantially that the constitutional right of 
stockholders of a corporation to examine its books 
cannot be denied; that there can be no question that 
the ownership of stock confers the authority to see 
that the property is well managed; and that the exer- 
cise of that right primarily involves the right to ex- 
amine the books. The case further holds that the 



31 S Corporation Law as Applied 

refusal of the corporation, in a proper case, exposes 
the corporation to prosecution, either by way of man- 
damus, or an action for damages against the corporate 
officers who prevented the examination. 

The statutory provisions conferring the right of 
stockholders to inspect books, etc., at proper times and 
places, and for proper purposes, etc., is only a con- 
firmation of the common-law right in the premises. 

Statutes conferring a like privilege do not deprive 
the stockholder of the common-law right to examine 
the transfer books — 

See, Matter of Sage, 70 N. Y., 220. 

The following by the same court is concise and con- 
vincing : 

"The principle upon which a stockholder is allowed 
access to the books of a corporation is as applicable to 
the case of a banking corporation as it is to any other 
kind of corporation. It is his common-law right, and 
unless restricted by law or by the charter, the exercise 
of that right will not be denied him at a proper time 
and place, when the circumstances are such as seem to 
the court to make that right available." 
In re Tuttle vs. The Iron National Bank of Platts- 
burgh, 170 N. Y., 9. 

The books and papers of a trading corporation, 
though of necessity left in some one hand, are the com- 
mon property of the stockholders; and unless the 
charter provides otherwise, a stockholder has the 
right, at proper times, to inspect them personally, and, 



to Private Business Corporations 319 

with the aid of a disinterested expert, to make extracts 
from them for a definite and proper purpose. 
Phoenix Iron Co. vs. Commonwealth, ex rel Seller, 113 
Penn. State Reps., 563. 

The above is a leading case in that State. 

The case of Lewis vs. Brainard, 53 Vermont, 510, 
has been cited in support of the principle that the 
stockholder has a right to examine the books of the 
corporation. That case, however, was brought under 
certain delimiting statutes, and is local in its appli- 
cation. 

"The act of incorporation gives the directors power 
to make such by-laws as shall be needful, touching the 
government of the corporation, the management of its 
business and property." >k * * 

"Whether by-laws are reasonable and consistent 
with law is a question solely for the court." 
Commonwealth vs. Worcester, 3 Pick., Mass., 462; 
Angel and Ames on Corporations, Ch. 9, 177 to 200; 
Village of Buffalo vs. Webster, 10 Wend., N. Y., 100; 
Dunham vs. The Trustees, etc., of Rochester, 5 Cow., 
N. Y., 465. * * :1c 

"What would be said of a legislative body who would 
refuse to a member the knowledge of its proceedings 
while he was absent, or perusal of its journals?" 

The foregoing authoritative statement is from the 
opinion of Chief Justice Savage, in 
The People ex rel Muir vs. Throop, 12 Wendell 
(N. Y.), 183. 



320 Corporation Law as Applied 

In New Jersey — the parent State of numerous cor- 
porations and of statutes favorable to controlling 
interests — the earlier law concerning the right of in- 
spection and examination of books is clearly laid down 
in Huyler vs. The Cragin Cattle Co., 40 N. J., Equity, 
392, wherein the chancellor ordered that the books of 
the company, which were kept out of the State, should 
be brought into the State, and that the petitioners 
should be allowed, at reasonable specified times, to ex- 
amine them after they should have been so brought in. 

This decision, however, was based upon a local stat- 
ute. The learned chancellor, in his opinion, p. 392, 
goes on to cite approvingly, 

Cockburn vs. Union Bank of La., 13 La., Ann., 289. 
People ex rel Muir vs. Throop, 12 Wend. N. Y., 183. 
State ex rel Rosenfeld vs. Einstein, 17 Vr. (N. J.), 

479 (46 N. J. L.) ; as well as. 
Field on Corporations, sec. 118; and. 
Angel and Ames, supra. 

As has been abundantly stated herein, the right of 
inspection of the books and papers of a corporation 
by a stockholder is a common-law right. That right 
is sometimes conferred by statutory enactment; but 
under the principles above enunciated such statutory 
permission does not deprive the Supreme Court, or 
other tribunal having original equitable jurisdiction, 
of its inherent power to compel the enforcement of 
such right whenever it is clearly shown that the exer- 
cise of such right will result in the furtherance of 
justice. 



to Private Business Corporations 321 

Includes right to make copies. — Stockholders may, 
at all reasonable and proper times, inspect and copy 
the books and papers of the corporation of which he 
is a member, providing he is ''interested in some spe- 
cial object," or has "in view some proper purpose in 
respect to which the inspection is requisite." 
See Am. and Eng. Enc. Law, Vol. XIX., p. 231, et 
seq. ( I st Ed. ) , and cases cited. 

The right of a creditor of a member of a company 
to inspect the register of mortgages under sec. 43 of 
the Act of 1862, includes a right to take copies of the 
register. 

Nelson vs. Anglo-American Land Mortgage Agency 
Co., L. R., I Chanc. R., 1897, ^3^- 

In the above case Justice Sterling said: 

"The general effect of the judgment of the Court 
of Appeals is that a right to inspect carries with it 
a right to take copies, unless it can clearly be seen 
that the latter right was not meant to be given." 

Ibid. 

A corporator of a municipal corporation has a right 
to have a general inspection, and to take copies of the 
public documents and records of the corporation under 
such rules and restrictians as will preserve them from 
loss or mutilation and prevent any serious interrup- 
tion of the duties of the custodians. 

This right is not to be restricted to cases where the 
corporators have some private interest for the enforce- 
ment and protection of which an inspection of certain 
documents is necessary. 



322 Corporation Law as Applied 

People ex rel Henry vs. Cornell, 47 Barb.(N. Y.), 329. 

In the above case Barnard, J., said: 

''It cannot be seriously questioned that the corpora- 
tion, notwithstanding the appointment of officers to 
conduct the business of the corporation, retain a very 
great interest in the mode and manner in which it 
may be conducted, and consequently upon the above 
reasoning have a right to full knowledge of all the 
official acts of their officers, and, of course, right to 
all the means of knowledge which their officers pos- 
sess in their official capacity." 

But see same entitled case, 35 How. Pr. Rep. 
(N. Y.), 31, in which the rule seems to be modified. 

Receivership not ground for refusal. — In the fol- 
lowing decision, Mr. Justice Dixon said : 

"Undoubtedly, at proper times and for proper pur- 
poses, shareholders are entitled to inspect corporate 
books." 

Rosenfeld vs. Einstein, 46 N. J. L., 479. 

Where a stockholder of a corporation which is in 
the hands of a receiver seeks leave to inspect its books, 
it is no ground for denying him the right that his 
object is to obtain material to convince other stock- 
holders that a plan of reorganization, which has not 
met the approval of a majority of them, should not be 
carried out. 

"The fact that corporation is in receiver's hands 
does not affect the right." 



to Private Business Corporations 323 

People vs. Cataract Bank, 5 Misc. Rep. (N. Y.), 14; 

see also, 
Chable vs. Nicaragua Canal Construction Co., 59 Fed. 

Rep., 846. 
The right of inspection is not extinguished by the 
dissolution of the corporation. 
Hall vs. Connell, 3 Youngs and Collyers Reps., 707- 

713. 
Promotion of ulterior purpose through inspection 
not favored. — The authorities hold that upon his ap- 
plication to the court, the stockholder is bound to 
show that the information sought is for a necessary 
and proper purpose, and for the applying-stockholder's 
own use, and is not intended to benefit ''ulterior ob- 
jects or other persons." The propriety and necessity 
of such a rule is obvious. 
Clark and Marshall, sec. 530. 
Cook on Corporations, sec. 511. 

In England the application is denied unless the 
stockholder shows to the court the purpose of the 
inspection, and the court deems such purpose reason- 
able and proper. 

Morawetz, sec. 473. 

This idea of the proper purpose of the inspection 
appears very distinctly and runs through all of the 
discussions upon the subject. As already suggested 
herein, this common-law right, if too freely exercised, 
would seriously hinder the corporate business and 
might even paralyze the corporation's life. 



324 Corporation Law as Applied 

Accordingly, the principle of ''business exigency" 
here asserts itself, and abrogates the common-law rule 
as soon as such inspection ceases to be an imperative 
necessity. And the question as to which of these op- 
posing principles shall prevail is for the conscience of 
the court, in the exercise of a sound discretion. 

In Walsh vs. The Press Co., 48 App. Div., 333 
(1900), it was held that a discovery of the books and 
papers of a corporation would not be ordered by the 
court unless facts and circumstances were stated to 
the court sufficient to show that the books and papers 
sought to be examined contained material evidence 
for the party moving. This unanimous opinion ex- 
plains quite fully the rules and practice in this con- 
nection. 

The court will not grant an application by members 
of a corporate body for a mandamus to inspect the 
documents of the corporation unless it be shown that 
such inspection is necessary with reference to some 
specific dispute or question pending, in which the par- 
ties applying are interested; and the inspection will 
then only be granted to such extent as may be neces- 
sary for the particular occasion. 

Where members of a corporation, merely alleging 
grounds on which they believed that its affairs were 
improperly conducted and the officers unduly chosen, 
and complaining of misgovernment in some particular 
instance not affecting the parties themselves, or any 
matter then in dispute, applied to the master and ward- 



to Private Business Corporations 325 

ers to allow them to inspect and take copies of all rec- 
ords, books and muniments in the possession of the 
master and warders belonging to the company, or re- 
lating to its affairs, the court discharged the rule with 
costs. 

See, 
The King vs. The Master and Warders of the Mer- 
chant Tailors Co., 2d Bannewell and Adolphus 
Reps., 115. (King's Bench, Easter Term, 1831.) 

In England the courts compelled the shareholder 
asking leave to inspect books, etc., of the corporation 
to give an undertaking that plaintiff, his solicitor and 
agents would not make known the information derived 
from the inspection; holding in effect that the share- 
holder, though he himself had the right to inspect, etc., 
had no right to divulge the resulting information to 
others, and that an injunction would issue to prevent 
the same. 

Williams vs. The Prince of Wales Life, etc., Co., 23 
Beaven, 338. (Eng. Chancery, 1857.) 

In a recent case in the Appellate Division, First 
Dept. (N. Y.), May Term, 1903, the rule was applied 
by Mr. Justice Ingraham, in an unanimous decision, 
holding that in the particular case there under consid- 
eration the order for examination of books, appealed 
from, was too broad and should have been restricted 
''* * . * ^Q ^Yi^ corporate minute books and by-laws 
of the defendant, the S. S. McClure Co., relating to 
the contracts which are annexed to and made a part 
of the complaint.'' 



326 Corporation Law as Applied 

De Brunoff vs. McClure Tissot Co., 82 N. Y. Sup., 
38-39- 

The right of inspection of books and papers exists 
for the purpose of disclosing something which "it is 
the right of the stockholder to know; and not merely 
to annoy the corporation, or for some purpose other 
than the stockholders' interest." 

The People ex rel McElwee vs. Produce Exchange 
Trust Co., 53 App. Div., 93. 

In the above case the object of the writ was to ob- 
tain information for the State, in furtherance of an 
effort to cause the parties defendant to make good any 
deficit occasioned by their misconduct. 

Opinion by Rumsey, J., Patterson, O'Brien and 
Hatch, J. J., concurring. 

Van Brunt, P. J., in a minority opinion, said : 

'T think that by the rule established in the Stein- 
way case, 159 N. Y., 250, the motion should have 
been granted." 

In this case, however, the mandamus was refused 
upon the ground that the respondent had denied nearly 
all of the material facts set up in the moving papers 
upon which the court was asked to exercise its juris- 
diction. In effect, the court found there was a failure 
of proof, and denied the application in its sound dis- 
cretion. 

The decision cannot be said to disturb the principles 
above laid down. 

Mandamus proper remedy for refusal of right. — 



to Private Business Corporations 327 

A stockholder has the right to the inspection of the 
books of the corporation of which he is a member, and 
mandamus is the proper method of enforcing the same. 

See opinion of Chief Justice Savage, in The People 
ex rel Muir vs. Throop, 12 Wendell (N. Y.), 183: 
Cook on Corporations, sec. 511. 

The Supreme Court has power by mandamus to 
compel the officers and directors of a corporation to 
permit a shareholder to inspect the books and papers 
of the corporation, other than the transfer books. 

Matter of Steinway, 31 App. Div. (N. Y.), 70. 

First Dept., June term, 1898; opinion by Patterson, 
J. O'Brien and McLaughlin, J. J., concurred; Van 
Brunt, P. J., and Ingraham, J., dissented. 

This decision was sustained by the Court of Ap- 
peals, 159 N. Y., 250, the court laying down the 
rule that: 

"The Supreme Court has the power, upon the peti- 
tion of a stockholder, to compel by mandamus a do- 
mestic manufacturing corporation to exhibit its books 
for inspection." 

The party damnified has the right to proceed either 
by way of mandamus, or he may maintain an action 
for damages against the obstructing officers. 
Legendre vs. The New Orleans Brewing Association, 
45 La. Ann., 669. 

The principle which is the basis of the right of the 
stockholders to inspect the books of the corporation 
seems to relate to the common ownership by the stock- 
holders; but this right, as has been shown, may be 



328 Corporation Law as Applied . 

exercised only in consonance with the ancient and 
now thoroughly approved maxim, ''sic utere tuo/' etc. 
Accordingly, the courts, both of this country and 
England, in the issuance of the compulsory process, 
viz., mandamus, require as a prerequisite that the 
stockholder seeking information shall state the purpose 
of the desired investigation. The exaction of that 
condition precedent is beneficial to the stockholders as 
such because it debars useless and often antagonistic 
inspections of its affairs, commonly known as "fishing 
expeditions." This phase of the subject has already 
been touched upon, to some extent, in this chapter. 

In re Burton and the Saddlers' Company, 31 Law 
Journal, Queen's Bench, 62, the court, by Mr. Justice 
Clark, says: 

'T take the result of the cases to be that a man- 
damus may go against a corporation to inspect and 
see whether a stockholder can raise a particular case 
in his favor by examining the books. It must be, in 
my view, a case with reference to some defined, dis- 
tinct dispute, as to which it appears that it might be 
to his advantage to see the minutes of the corporation.** 

The rule above stated limits the right materially, 
and appears to be less liberal than the view adopted 
generally in the State and Federal courts. 

In this decision Mr. Justice Clark continues : 

"In mandamus, the relator must in all cases estab- 
lish a specific legal right, as well as the want of a 
specific legal remedy." 

Referring to the remedy, a leading decision af^rms 



to Private Business Corporations 329 

the right of the Supreme Court to issue the writ of 
mandamus in aid of a stockholder, permitting inspec- 
tion of corporation books, etc., whenever in the sound 
discretion of the court such order is just and proper 
(z. e.j when required for the purpose of preserving the 
rights and interests of the stockholders). 
Matter of Fitch, i6o N. Y., 87. 

Perhaps no more fitting close of this chapter is pos- 
sible than to cite an able decision which, while it is 
not the voice of the highest court of New York, still 
contains in direct and forceful words ''the conclusion 
of the whole matter," viz. : 

Application for mandamus by stockholder to en- 
force his right to inspect the corporation books is 
addressed to the sound discretion of the court, and is 
only granted in furtherance of justice. 

See, 

In re Pierson, 44 App. Div. (N. Y.), 215. 

Recent decisions confirmatory of the text. — For an 
affirmance of the right to examine books, etc., see the 
recent decisions (not as yet reported) by the U. S. 
Supreme Court, in the Paper Trust and Tobacco Trust 
cases. 

See, also, like ruling by the Missouri Supreme Court 
in the litigation prosecuted by Attorney General Had- 
ley in the name of the State of Missouri against the 
Standard Oil Company of Indiana, the Waters-Pierce 
Oil Company and the Republic Oil Company, both 
of the last-named corporations holding their charters 
under the laws of the State of Missouri. 



330 Corporation Law as Applied 



CHAPTER XIX. 
Stockholders' Rights and Wrongs Enumerated. 

Difficulty of task imposed. — Rights as enumerated by 
text- writers. — General classification of wrongs. — 
Instances of wrongs. — Source of the majority of 
wrongs. — Distinction noted. — Enumeration of 
wrongs. — Wrong usually involves infraction of 
trust relation. — A leading case quoted. — Refer- 
ence to further treatment elsewhere. 

Difficulty of task imposed. — Probably no task less 
easy of performance can confront a text-writer than 
to enumerate all the rig;hts and wrongs of the stock- 
holder. 

The question has been treated of at length in all, or 
nearly all, the leading authors on Corporations, and 
with the exception of new developments resulting 
from changed conditions, the resulting classification is 
reasonably satisfactory, even if not altogether con- 
clusive. 

Rights as enumerated by text-writers. — Those de- 
fined in the text-books are the right 

(a) To have due notice of, and vote at meetings 



to Private Business Corporations 331 

of stockholders, and to that extent participate in the 
actions of the corporation. 

(&) To receive dividends from the corporation's 
surplus. 

(c) To have a certificate evidencing ownership of 
stock. 

{d) To assign and transfer the shares represented 
by such a certificate, and to have the same duly re- 
corded upon the books of the company. 

{e) To inspect the books and papers of the com- 
pany, and to have such information of the business 
transactions of those managing and conducting the 
corporate business, as may be reasonably necessary for 
the stockholder to safeguard and protect his interests. 

(/) To appeal to the courts for protection when 
wrongs are about to be imposed, or for relief when 
such wrong has been effectuated. 

{g) To demand and insist that the corporation, its 

business and affairs, shall be carried on strictly infra- 
vires, viz., for the objects and purposes of its creation 
and according to its charter and by-laws, with "equal 
rights for all and favors to none." 

General classification of wrongs. — The wrongs of 
stockholders are equally numerous, and in general may 
be said to be the deprivation of any right. Two sep- 
arate and distinct classes present themselves, viz. : 

I. Those which pertain strictly to the stockholder 
as an individual member of the body corporate; and, 



332 Corporation Law as Applied 

2. Those which pertain to him in common with all 
his fellow stockholders. 

Instances of wrongs. — Instances of the first class 
are the following: The withholding of a dividend al- 
ready declared and paid to other stockholders; or the 
refusal upon demand to register a transfer of stock. 
Under this head falls every other grievance wherein 
the matter in difference is between the company and 
the individual. 

Of the second class it is sufficient to say that they 
consist of those instances wherein the stockholders are 
injured as a class and in which the injury reaches out 
and beyond the individual and extends in like man- 
ner to every stockholder of the corporation who is 
not a participant or an acquiescent in the wrong com- 
plained of. 

The name of the latter class of wrongs is legion, 
and to specifically enumerate them all would be an im- 
possibility. The reason for this inability is apparent 
when we consider that they represent the desire to 
overreach and oppress, and that they vary with every 
shade of opportunity which the circumstances afford, 
and with every degree of cunning and audacity dis- 
played by the persons concerned in the several schemes. 

Source of the majority of wrongs. — The wrongs 
that occur to stockholders principally come to them by 
reason of ultra vires acts, or through the oppressive 
conduct of the directors, supported, in most cases, by 
a majority of the stockholders; sometimes the acts 



to Private Business Corporations 333 

savor of omission, but those which are overt constitute 
the overwhelming majority. 

Distinction noted. — While there is, theoretically, a 
distinction between wrongful acts committed by ma- 
jority-stockholders and those of directors, officers and 
agents, the point is not particularly material, for the 
reason that the directors owe their position to, are 
sustained by and, in brief, are the spokesmen of the 
majority of the stockholders. Thus it is seen that in 
almost all instances where a wrong is suffered by a 
minority-stockholder, — practically, and in its origin, 
it is the act of both the directors and the majority 
stock-interest. 

Enumeration of wrongs. — Among the specific 
things which, when done in contravention to stock- 
holders' rights, the courts have from time to time 
taken cognizance of are the following, viz. : 

(a) Selling the entire assets and franchise of the 
corporation. 

{h) Issuing bonds and securing payment thereof 
by mortgage upon the corporate property. 

{c) Buying the property of other corporations or 
a controlling interest in their stock. 

{d) Transferring the control of their company to 
a so-called ''holding company," and thus extinguishing 
the minority stockholders' voting right, etc. 

{e) Terminating the corporation's existence by 
various manipulative methods, including consolidation, 



334 Corporation Law as Applied 

merger, combination and amalgamation with other 
corporations. 

(/) Resisting payment of claims. 

{g) Payment of claims. 

{h) Declaring and paying dividends. 

{i) Refusing to declare and pay dividends. 

(/) Appropriating money or property by directors 
or officers to their own use. 

{k) Subordinating the business and interest of the 
corporation to that of others. 

(/) Material divergence from the line of procedure 
laid down in the laws, the charter and the by-laws. 

(m) Any ultra vires act, i. e., carrying on the busi- 
ness of the corporation for any purpose other than that 
for which it was created. 

(?i) Any act which, while technically injra vires, is 
at the same time oppressive in its nature; or unjust, 
injurious or inequitable toward the corporate body as 
a whole, or toward the minority interest. 

The foregoing list, as has been said, is of necessity 
incomplete, since human ingenuity is always at work 
evolving new schemes and means of attack upon the 
citadel of corporate existence; and few cases arise in 
which novel complications or features, until then un- 
heard of, do not appear. 

Wrong usually involves infraction of trust rela- 
tion. — The relationship between the directors and the 
stockholders (without a majority of whom these 



to Private Business Corporations 335 

wrongful acts can rarely be perpetrated), is, as has 
been seen, a fiduciary one, and is governed generally 
by the principles and rules which mark the relation- 
ship of trustee and cestui-que-trust. With this doc- 
trine well established and clearly in mind, it appears 
in general that acts which violate the rules governing 
the actions of trustees concerning their trust-estates 
and their cestuis-que-trustent are wrongs; and this 
denomination includes all prohibited acts, whether 
ultra vires and clearly unlawful, or whether numbered 
among those myriad forms that, while not technically 
ultra vires, are yet, as we have seen, oppressive in 
their nature and subversive of the interests of the 
stockholders. In all such cases the courts are open 
to protect the injured party and redress the wrong. 

Of the various forms of oppression, the method most 
often adopted by the directors, aided and supported by 
the majority of the stockholders, consists of a wrong- 
ful combination, properly classed as a conspiracy; and 
it will be found in practice that almost all of the series 
of transactions by and through which the minority 
stockholder is mulcted, fall within that class. 

See in this connection. Chapter XXIL, "Amalga- 
mation, Combination," etc. 

A leading case quoted. — In a leading and exten- 
sively cited Pennsylvania case. The Morris Run Coal 
Company vs. Barclay Coal Company, 68 Penn. State, 
173, Mr. Justice Agnew said : 

"In all such combinations where the purpose is in- 






336 Corporation Law as Applied 

jurious or unlawful, the gist of offense is the con- 
spiracy. ^ * ^ Men can often do by the combina- 
tion of many what severally no one could accomplish, 
and even when done by one would be innocent. * * * 
There is a potency in numbers, when combined, which 
the law cannot overlook when injury is the conse- 
quence." 

This apt language was quoted by Mr. Justice Har- 
lan in the Northern Securities case. 

Reference to further treatment elsewhere. — The 

reader who desires to assure himself that there is 
''balm in Gilead" should consult the closing chapters, 
beginning with Chapter XXL, wherein it is believed 
that there has been set out a faithful epitome of what 
the courts have done in the protection of stockholders' 
rights in times past, and what there is every reason 
to believe the courts will continue to do, — in further- 
ance of the eternal principles of justice and right. 



to Private Business Corporations 337 



CHAPTER XX. 
Ratification, Acquiescence, Laches, Estoppel. 

Distinguishment of these corelative terms. — When 
courts will refuse relief. — Estoppel defined. — 
Principle of estoppel, as applied to corporative 
acts. — Periods of deferred action amounting to 
acquiescence, etc. — Presumption of ratification 
arises when benefits are received. — Presumptions 
same as with natural persons. — Knowledge must 
precede ratification, etc. — Equity follows the law. 
— Rule as to illegal acts. — New York rule as to 
subsequent purchaser. — Stockholder may confide 
in management, without laches. 

Distinguishment of these corelative terms. — While 
the courts are open and ready to prevent or redress 
corporative wrongs, there are certain circumstances 
under which the remedial gates are closed; and this 
occurs in the cases when the applicant himself, either 
by act of commission or omission, has become respon- 
sible for his own debarring. 

These acts may, in a general classification apart 
from other equity-requisites, be stated as : 

(a) Ratification. 

(h) Acquiescence. 



338 Corporation Law as Applied 

(c) Laches. 

{d) Estoppel. 

Without going to the length of an extensive treat- 
ment of the subject of definitions, it may be proper 
at this point to define these various ''bars," and give 
some general idea of their effect before citing the au- 
thorities which relate to subject in hand. 

The stockholder may, in the first place, preclude 
himself from relief by an actual ratification of the 
act complained of ; or he may acquiesce therein. While 
the former naturally presupposes a more affirmative, 
and therefore more important and effective act than 
mere acquiescence, in effect the results are identical; 
and in the various authorities we find the doctrine uni- 
versally laid down that any stockholder having full 
knowledge of all the facts may so act in either of the 
ways above specified as to prevent a successful appli- 
cation to the court for assistance. By such confirma- 
tion of the injurious or to-be-injurious act, he con- 
dones in theory and practice any wrong which he has 
suffered or which may in future flow therefrom. 

It is not within the scope of this work, however, to 
enter into the finer shades of meaning pertaining to 
the aforesaid terms. Yet it may be permitted to add 
that ratification stands for some open and deter- 
mined act whereby the aggrieved has placed himself, 
after the accomplishment of the wrong complained of, 
in practically the same position as he would have occu- 
pied had he, at the inception thereof, been an active 
promoter and participant in the deed; while acqui- 



to Private Business Corporations 339 

escence, on the other hand, implies that since the per- 
formance of the questionable transaction it has met 
with his approval and sanction to the extent, at least, 
of a gwa^f-promise on his part that he will not object 
to its workings, and will be satisfied with the conse- 
quences it entails. The practical effect, however, as 
is very clear, is the same in either case ; the stockholder 
so ratifying or acquiescing is debarred by the courts 
from objecting to the wrongful transaction and from 
holding the perpetrators responsible therefor. 

With regard to kindred disqualification of laches, 
it is only necessary here to say that as the familiar 
rules and principles concerning the same are applied 
to the affairs of natural persons, so are they applied in 
matters corporate. 

The last of these disqualifying elements is estop- 
pel, to which subject the foregoing comments apply 
with equal force and effect. 

Before adding the subjoined list of extracts from 
decisions and the text-writers, it is suggested that the 
confusion which often arises in the legal mind with 
regard to the subject generally, comes from disregard 
or inadvertence in the matter of the proper definition 
of the term ''corporations," — what they are and how 
they act, — as laid down in the courts. 

In this connection, and to solve the difficulty re- 
ferred to, careful reference should be had to the au- 
thorities quoted in Chapter I. of this work, where the 
subject will be found to be treated of quite fully. 



340 Corporation Law as Applied 

It there appears, in substance, that a corporation is 
a useful quantity, created by the people through their 
legislatures and made a 'legal entity," an "artificial 
person," governed by and according to the same rules 
and principles applicable to natural persons, so far as 
its inherent nature will permit. 

This principle or doctrine runs through all the deci- 
sions and the text-books. With the same well in view, 
it follows as a natural sequence that the various rules 
and principles of law embodied in acquiescence, rati- 
fication, laches, estoppel, as well as presumptions, tort- 
feasance, and the like, apply to the persons natural or 
artificial in equal degree and to the same extent, within 
the limitation stated. 

Common-sense and reasonable discrimination will 
indicate with clearness and certainty the point where 
their several capacities and qualifications diverge, and 
where, per force, the identity of the two persons, to 
wit, the artificial and the natural, must terminate. 

When courts will refuse relief. — Stockholders of a 
private corporation may be denied equitable relief 
against acts of a corporation which do not concern 
the public, but affect only the interests of stockholders, 
and which, although ultra vires, are not per se illegal 
or malum prohibititm, when the stockholder asking for 
relief has assented to those acts or has acquiesced 
therein with full knowledge of the facts. 

See 

Skinner vs. Smith, 134 N. Y., 240. 



to Private Business Corporations 341 

"Acquiescence of a stockholder will not preclude a 
recovery in an action brought by him in a proper case 
for the benefit of such corporation, in respect of 
wrongs committed by the managing officers of said 
corporation against it for the benefit of another cor- 
poration in whom they are also officers. In such 
case, while the stockholder is nominally plaintiff he is 
only nominally so; the action is really between the 
corporations joined as defendants, the one as the 
party wronged, the other as the party which profited 
by the wrong." 
Fitzgerald vs. Fitzgerald & Mallard Construction Co., 

etc., 41 Nebraska Reps., 375 et seq. 
Opinion by Ryan, J. (1894). 

The above, an important case, has an exhaustive line 
of authorities on the subject, quod vide. 

Estoppel defined. — Estoppel is, in an ancient book, 
defined as ''the stopping of a man's mouth from speak- 
ing the truth." 

Bridgeman's Equity Digest, Vol. I., p. 658. 

Principle of estoppel as applied to corporative acts. — 
The subject of estoppel, as applied to corporations, is 
thus instructively treated in 

Herman on Estoppels, sec. 1223 (1886) : 

"A corporation may become bound and estopped 
otherwise than under a corporate seal, and their un- 
dertakings and admissions may be evidenced other- 
wise than by records, resolutions, by-laws, ordinances, 
or other written documents. Technical as well as equi- 



342 Corporation Law as Applied 

table estoppels apply to corporations as well as to in- 
dividuals. The ratification of a contract by a corpo- 
ration may be inferred from acts attending the trans- 
action, and where persons assuming to act as agents 
of a corporation, but without legal authority, make a 
contract and the corporation receives the benefit of it 
and uses the property acquired under it, such acts will 
ratify the contract and render the corporation liable 
thereon. Corporations, in regard to their contracts, 
are upon the same basis as natural persons, open to the 
same implications, receiving the benefit of the same 
presumptions." 

See ibid, sec. 1223. 

"The well-settled rule may therefore be thus formu- 
lated : Where a corporation, public or private, has law- 
ful power to issue negotiable securities, such as city, 
county, township and other bonds, or bonds secured 
by deeds of trust and mortgages, a bona Me holder for 
value has the right to presume that the power was 
properly exercised, and is not bound to look beyond 
the question of its existence. Where the bonds on 
their face recite the circumstances which bring them 
within the power, the corporation is estopped to deny 
the truth of the recitals. Such corporation cannot 
take advantage of any irregularities in their issue as 
against the public, who were justified in believing 
omnia rite esse acta. They cannot deny that which 
their agents have affirmed in order to place them on 
the market." 

Ibid. 



to Private Business Corporations 343 

"The fulfilment of the conditions or restrictions un- 
der which a body corporate is empowered to act will 
be presumed until it is disproved. When a corpora- 
tion has power under any circumstances to issue nego- 
tiable securities, a bona fide holder has a right to pre- 
sume that they were issued under circumstances which 
gave the requisite authority, and they are no more lia- 
ble to be impeached for any irregularity in the hands 
of such a holder than any other commercial paper." 

The section also touches the question of presump- 
tions. 

Ibid., sec. 1238. 

"Where a corporation has the power to do an act 
they may be estopped from objecting that the form 
they adopted was not the exact mode prescribed in the 
charter; but where the question is one of power, they 
cannot be deemed estopped to deny that they have done 
what they never could by legal possibility have done. 
But if the agents of a railroad company represent the 
company to the public as common carriers to a place 
beyond the limits of their own road, and in such a 
manner and for such a time that the corporators may 
be presumed to know and assent to it, the company 
will be estopped to deny it, although no actual arrange- 
ments with connecting lines exist, although the com- 
pany may have had no special authority by their char- 
ters to make such contracts, and could perhaps by 
proper proceedings have been restrained from so doing. 
They cannot plead such want of authority against per- 
sons contracting with their agents, empowered so to 



344 Corporation Law as Applied 

contract by express act of the company or their direct- 
ors, or by implication arising from a mutual arrange- 
ment among all the carriers, between the place where 
the goods are received and the place where they are 
delivered, and although the agent making such a con- 
tract has no authority from the company to do so, yet 
if for several years before and after the transaction 
sued upon he made similar contracts to deliver goods 
at various places beyond the line of the company's 
road, their assent may be presumed, and they will be 
estopped from denying their authority. Thus a rail- 
road company contracted to carry sixteen carloads of 
cattle from St. Louis to Philadelphia, and nothing was 
said about the change of cars or other companies. It 
was held that, unless forbidden by its charter, it might 
make a contract to carry cattle over connecting lines, 
and it would be liable in all respects upon other lines 
as on its own. The public has a right to assume that 
the contracting company has made all arrangements 
necessary to the fulfilment of the obligations it has 
assumed." 

Ibid., sec. 1238. 

Periods of deferred action amounting to acquies- 
cence, etc. — Acquiescence for more than four years 
in acts done by a corporation in excess of its charter 
powers, it was held in Arkansas, will prevent a stock- 
holder from successfully objecting thereto. 
Ex parte Booker, 18 Ark., 338. 

The decision is by Mr. Justice Hanly. 



to Private Business Corporations 345 

Action by shareholder against the directors, in 
equity, exists independently of any statute law, and in 
New York, under the code, it is not barred until ten 
years after the cause of action accrued. 

Brinkerhoff vs. Bostwick, 99 N. Y., 185. 

As to the length of time, where there is no bar by 
the statute of limitations, — a court of equity will never 
lay down, as a general proposition, that though the 
fact that an imposition has been practised is estab- 
lished, the party is too late. 

See opinion of Lord Chancellor Erskine, in 
Morse vs. Royal, 12 Vesey, 355, 373. 

In a case where the element of fraud did not enter 
it was held that five years was too long to wait. 
Kitchen vs. The St. Louis Ry. Co., etc., 69 Missouri, 
224. 

In regard to stockholders, it was held that a lapse 
of six years is not a bar to a stockholder's action. 
Covington, etc., vs. Bowlers Executors, etc., 9 Bush, 
570. 

The cases have held as disqualifying limitations 
terms varying from eighteen months to twenty years ; 
but the consensus of the various opinions seems to fix 
the term at three years. 

Daniemeyer vs. Coleman, 11 Fed. Rep., 99. 

Stockholders having claims against a corporation 
have a right to await the determination of pending 
suits on similar claims without being charged with 
laches. 

Boardman vs. Lake Shore Ry. Co., 84 N. Y., 157. 



346 Corporation Law as Applied 

Presumption of ratification arises when benefits are 
received. — A party is sometimes estopped from alleg- 
ing that his contract with a corporation is ultra vires 
when he has received a benefit therefrom. 
Maryland Savings Inst. vs. Schroeder, 8 Gill and J. 

(Md.),93- 
Booth vs. Robinson, 55 Md., 419. 

The latter case is important. The opinion of Alvey, 
J., discourses very ably on the subject of directors' 
derelictions, as connected with the subject in hand. 

Presumption of ratification arises from slight cir- 
cumstances, when the unauthorized act is already bene- 
ficial to the corporation. 

Presumptions same as with natural persons. — Cor- 
porations are held subject to the same presumptions 
as in the case of natural persons. 
Hall vs. The Union M. F. Ins. Co., 32 N. H., 299. 
Gilbert vs. Manchester, 55 N. H., 298. 

A corporation can make a ratification, or raise an 
estoppel against itself, as well as an individual. 
Kneeland vs. Gilman, 24 Wisconsin, 39, 

If a cestui que trust concurs in the breach, he is for- 
ever estopped from proceeding against the trustees for 
the consequences of the act. 

Lewis on Trusts, Chapter XXX., sees, i and 2. 

Knowledge must precede ratification, etc. — But he 

must have had the means of knowledge that the act 
involved a breach of trust. * * * The remedies 



to Private Business Corporations 347 

are assigned upon the supposition that the cestui que 

trust has not concurred, acquiesced or confirmed the 

act. 

Ibid. 

In order that there may be ratification, there must 
be knowledge. 
First Nat. Bank of Fort Scott vs. Drake, 29 Kansas, 

311- 
"Confirmation" (or ratification) "must be a solemn 
and deliberate act." 

Lewin on Trusts, supra. 

Equity follows the law. — Courts of equity, in cases 
of concurrent jurisdiction, usually consider themselves 
bound by the statute of limitation which governs 
courts of law in like cases, and this rather in obedience 
to the statute of limitations, than by analogy. 

Godden vs. Kimmell, 99 U. S., 201, 210. 

The foregoing is in accord with the maxim, "Equity 
follows the law." 

"Laches and the statute of limitations are set up in 
argument, but such defenses cannot prevail where the 
relief sought is grounded on a charge of secret fraud, 
and it appears the suit was commenced within a rea- 
sonable time after the evidence of the fraud was dis- 
covered." 

Meader vs. Norton, 11 Wallace, 442, — 
opinion by Mr. Justice Clifford. 

Rule as to illegal acts. — It never can be held that 
the acquiescence in illegal acts by the original holder 



348 Corporation Law as Applied 

of stock will bind a subsequent holder of that stock 
to submission to all future acts of the same character. 

Opinion of Lord Chancellor Chelmsford, in 
Bloxam vs. Met. Ry. Co., L. R. 3, 3 Chan. App., 337. 

Assent of all the stockholders cannot legalize an act 
which is malum prohibitum. 
Kent vs. Quicksilver Mining Co., 148 N. Y., 159, 187. 

New York rule as to subsequent purchaser. — A 

stockholder is not deprived of the right to sue by rea- 
son of the fact that he did not purchase his stock until 
after the commission of the acts complained of. 
Frothingham vs. Broadway and Seventh Ave. Ry., 9 
Civ. Pro. R. (N. Y.), 304. 
In the above Mr. Justice Van Brunt said that the 
objection to ^plaintiffs' right , to bring an action, because 
they were not stockholders at the time of the com- 
mission of the acts complained of, has never been 
recognized by the courts of this State. 

The decision is in part : 

"It would indeed be a great hardship if a wrong 
having been committed against the stockholders of a 
company that all power to redress that wrong should 
cease because of a transfer to an innocent holder <^f 
such stock. This would be reversing the rule that th- 
transfer of property includes the ownership of all inci- 
dents thereto." 

Hence it appears that estoppel is not an incident ot 
nor to be implied from change of ownership in New 
York. 



to Private Business Corporations 349 

In the above case the learned justice cites 
Young vs. Drake, 8 Hun., 6i. 
WilHams vs. Western U. T. Co., 93 N. Y., 162. 
Barr vs. Y. L. E. & W. R. R., 96 N. Y. 
Whitney, etc., Co. vs. Barbour, 63 N. Y., 62. 

Another leading case in New York, to the same ef- 
fect, is 

Ramsay vs. Gould (57 Barb., 398), supra. 

Stockholder may confide in management, without 
laches. — In Stanhope's Case L. R., i Chancery, 161, 
169, Lord Chancellor Cranworth has well said: 

"It is no part of the duty of a shareholder to look 
into the management of the business; he has a right, 
acting on the terms of the deed, to leave the manage- 
ment in the hands of those to whom he had confided 
it, and to assume they were doing their duty. It is 
not enough to show that they might have become ac- 
quainted with the mismanagement of their affairs. It 
must be shown that they did so." 

Having seen under what circumstances parties 
are free from fault and able to proceed in defense of 
rights or in redress of wrongs, it will be our care in 
the following chapter to discourse somewhat upon the 
nature and extent of the beneficial results which flow 
from existent remedies for corporative oppression in 
its familiar forms. 



350 Corporation Law as Applied 



CHAPTER XXI. 

The Remedies for Stockholders' Wrongs ; what 
they are, and when Applied. 

Consideration of remedies is necessary as well as per- 
tinent. — This subject belongs to equity. — Lord 
Hardwicke's decision in a leading case. — Remarks 
suggested by same. — Oppression by directors most 
common source of complaint. — Difference between 
general and local text-books considered. — Rem- 
edies classified. — Distinction between stockholders 
suing individually and as a class. — Broadness of 
relief in equity. — General consideration of remedy 
for oppression resumed. — Notice to corporation 
as a condition precedent to suit. — Stock newly 
bought and for ulterior object carries right to sue. 
— Equity protects small holder. — Reaches abuse of 
joint control. — Principles and authorities generally. 

Consideration of remedies is necessary as well as 
pertinent. — Having spoken of the wrongs occurring 
to stockholders, and the violation of their established 
rights, an examination of the subject of the remedies 
which may be applied for their prevention and redress 



to Private Business Corporations 351 

becomes not only appropriate and pertinent, but neces- 
sary. 

This subject belongs to equity. — From the outset 
it will be noticed in this chapter that equitable princi- 
ples and rules are invoked in such cases; for in all 
English-speaking countries the Court of Equity re- 
mains the tribunal where corporative affairs, and 
particularly the abuse of the fiduciary relation, are 
brought for regulation and correction. 

Lord Hardwicke's decision in leading case. — The 

justly styled Father of Equity, Lord Hardwicke, in 
1742, in the much-cited case of 

Charitable Corporation vs. Sir Robert Sutton, 2d At- 

kyns, 400, 
said: "There can be no injury but there must be a 
remedy." Since his day, throughout the intervening 
period of more than a century, the same righteous 
doctrine has been enunciated by other jurists, until it 
has become one of the axioms of equity law. 

Remarks suggested by same. — Perhaps it may be 
useful to repeat, as a species of corollary to the fore- 
going, that the greater part of the losses which have 
fallen upon stockholders because of oppressive acts 
by directors, or directors and the majority stock-inter- 
est in combination, have occurred through no fault 
of the law, nor from the want of power, nor from any 
want of disposition on the part of the judiciary to 
prevent or punish those wrongs, but from the failure 
of the injured parties themselves to confide their inter- 



352 Corporation Law as Applied 

ests to the courts and to prosecute their cause with 
vigor. 

A stockholder who finds that he is about to suffer 
some wrong, and who is himself free from the dis- 
abilities mentioned in Chapter XX., "Ratification," 
etc., and who possesses ''clean hands/' — may with con- 
fidence ask for relief in Equity. 

And in this connection it may be said that the powers 
of a Court of Equity are so broad and elastic as to 
reach every wrong. It will be found in practice that 
the courts will not take cognizance of mere matters 
of judgment and business. It is only where acts have 
been accomplished, or are threatened, which are so 
injurious or oppressive to the complaining stockholder 
as to be clearly subversive of justice and equity, that 
Courts of Equity will stretch forth a helping hand. 

A clear understanding of this distinction is neces- 
sary, for many litigants have failed because they did 
not perceive the inherent nature of those proper cases 
wherein Equity will interfere. 

To the directors is given the management of the 
business of the corporation; in them is reposed the 
fullest faith and confidence within the scope of the 
charter and of the laws applicable thereto; within 
those limits, when joined to the exercise of sound 
discretion and good faith, the judgment of the di- 
rectors cannot be gainsaid. But acts ultra vires, gross 
improvidence, fraud, collusion, partiality, wrongful 
discrimination, oppression, transactions contrary to 
the rules governing persons acting in a fiduciary ca- 



to Private Business Corporations 353 

pacity, or conduct clearly subversive of the interests 
of the stockholders whom they represent, to an ex- 
tent indicating mala£des in any of its hateful forms, — 
when they perpetrate or permit of these things then 
such directors are, in the eyes of the court, acting 
wrongfully. The aggrieved shareholder may then 
appeal to Equity to prevent the threatened or impend- 
ing wrong, or to redress the wrongful- act if already 
accomplished. 

Nor will it avail the wrongdoer to accomplish his 
object by subterfuge, for 

''It cannot be permitted that one may effect a pro- 
hibited result by indirection which he may not accom- 
plish by direct means." 

East St. Louis Connecting Ry. Co. vs. Jarvis, 92 
Fed. R., 735. 

Oppression by directors most common source of 
complaint. — The courts have been most frequently 
called upon to apply remedies in cases arising from 
the misdeed of directors. 

'The courts will interfere at suit of a stockholder 
to prevent corrupt or unlawful acts by directors who 
have entire control of the corporation and conduct its 
affairs for their individual benefit." 
Watkins vs. Watkins, etc., 11 App. Div. (N. Y.), 517. 

As we have seen in another place, Chapter XVI., 
"Stockholders Inter Sese," and elsewhere in the text, 
suits against the corporation's officers need not be 



354 Corporation Law as Applied 

brought by themselves, in its name, nor is notice of 
intent to sue required. 

"Even if the directors and officers were wiHing to 
prosecute, it would be a mockery to permit a suit 
against themselves to be brought and prosecuted under 
their management." 

Ryan vs. L. A. & N. W. Ry. Co., 21 Kansas, 404. 
Opinion by Horton, Ch. J. 

In 
Holmes, Booth & Hayden Co. vs. Willard, 125 N. Y., 

Mr. Justice Earl made a distinction between the cor- 
poration and the stockholders, holding that while a 
corporation may not maintain an action against the 
officers for carrying on ultra vires business, the stock- 
holders can institute such a suit. 

Relief afforded by courts of equity in such cases. — 

In support of the statement hereinbefore made as to 
the power and disposition of Courts of Equity to 
apply remedies for wrongs, we quote again from Lord 
Hardwicke as follows : 

"Nor will I ever determine that a Court of Equity 
cannot lay hold of every breach of trust, let the per- 
son be guilty of it either in a public or a private ca- 
pacity. * * * Nor will I determine that frauds of 
this kind are out of the reach of Courts of Law or 
Equity, for an intolerable grievance would follow 
from such a determination. * * * in the present 
case one thing is clear, * * * the five men who 



to Private Biisiness Corporations 355 

were engaged in that conspiracy are certainly liable 
to make good the losses which the corporation sus- 
tained in the first place, and the committeemen (di- 
rectors) who were not parties in the affair are liable 
in the second place only. "^ * ^" 
Charitable Corporation vs. Sutton, 2d Atkyns, 400, 
supra. 

This justly celebrated and leading English case 
shows the great extent to which the English High 
Court of Chancery has gone in applying potent and 
even drastic remedies to corporate misdeeds, and its 
readiness to afford remedies to protect the interests 
of stockholders. In its purpose, the corporation at 
bar in that case was closely analagous to our present 
business corporation. It was formed for the purpose 
of lending money upon securities and other prop- 
erty. The acts of the five committeemen (directors), 
which were the subject of the litigation, consisted of 
loaning the corporation's money to themselves upon 
property shown to be wholly inadequate. In his dis- 
position of the case the great Lord Chancellor said: 
That he should instruct the master to inquire who of 
those committeemen (directors) performed the acts 
complained of, and that they, or if deceased, their rep- 
resentatives, should be held liable to the corporation 
in the first instance; while those committeemen who 
were "supinely negligent" should be held secondarily 
liable. 

The influence of this early and salutary application 
of basic principles to corporative matters has been 



356 Corporation Law as Applied 

potent for good in the English and American courts 
down to the present day. National prejudice should 
not lead us into the error of belittling the results which 
have flowed from this and other clear, lofty and cor- 
rect enunciations of the Chancellors. The responsive 
feeling aroused in our own courts has led to benefits 
beyond the power of computation. It has bred con- 
fidence in corporate bodies, and these have been the 
engines through which the changes necessary to de- 
velop a continent have been effected. The prestige 
acquired through the fairness and vigor of those early 
decisions continues down to the present day. In 
matters affecting corporations, in so far as abstract 
law is concerned, the Equity Courts of this country 
have in general adopted the attitude and followed the 
decisions of their predecessor, the Court of Chancery 
oL England. 

That there is at this time danger of sinning against 
the Providence which so opportunely timed this influ- 
ence for good, at the very inception of our existence 
as a people, cannot be gainsaid. Loose corporate 
methods have been aggravated by faint objection, and 
by a careless application of underlying principles. It 
has been the purpose of this book to point out and to 
recall to mind the true rule which should govern in 
such cases. 

The courts will interfere and apply the appropriate 
remedy where the directors of a corporation make 
contracts with themselves and those with whom they 



to Private Business Corporations 357 

stand in confidential relation, and which appear to be 
directly or indirectly for their own benefit. 

See, 
McGourkey vs. Toledo and O. R. R. Co., 146 U. S., 
536. 

Semble, — any arrangement by which the directors 
become interested adversely to the corporation the 
court will declare void, at the instance of the corpora- 
tion or of the persons whose rights are sacrificed. 

Ibid. 

The action, 

McClure vs. Law, 161 N. Y., 78, 
was a case where the president of a corporation had 
sold to an outside interest his ofiice as director and 
president. The receiver of the corporation applied 
to the court, through an action against the ex-presi- 
dent, to recover the purchase price, — three thousand 
dollars; and the court held that the president must 
not be permitted himself personally to profit by reason 
of his official position, and adjudged that the money 
belonged to the corporation. 

Nor will the courts permit directors of a corpora- 
tion who are "tort-feasors" and have wasted the funds 
of their corporation to escape liability, even though 
the board of directors formally release them from 
liability. 

Gilbert vs. Finch, 173 N. Y., 455. 

It is not to be understood that all such transactions 
as the above will be set aside by the courts "of course,'' 



358 Corporation Law as Applied 

nor that directors participant, in all instances, will 
be held liable for resultant loss or damage; the severe 
rule governing those occupying fiduciary relations is 
applied only to the case of a director who, with knowl- 
edge, acts and deals with himself and makes to him- 
self or his friends a benefit or advantage (or is about 
to do so), however small, and who entails a corre- 
sponding loss to the stockholders. Then, and in all 
such cases, the court will interfere and apply the ap- 
propriate remedy, either of prevention or of redress. 
And, furthermore, the fact that a stockholder owns 
but a small part of the corporation stock will not 
stand in the way of his asking the court for and re- 
ceiving from it remedial justice when it appears he has 
suffered, or is about to suffer, an injury. The right of 
one stockholder is as sacred in the eyes of the court 
as that of many. 

Nash vs. Hall, ii Misc. (N. Y.), 468, 

affirmed in 

90 Hun., 354; 

Cook on Corporations, Chapter XLV., par. 735, p. 

1597, and in cases cited in note. 
Cook on Stock and Stockholders, sees. 643, 662. 

Though the majority stockholders own substantially 
the whole of the stock, — even then the minority stock- 
holder must not be deprived of his right to invoke 
equitable protection or relief. 

Buffalo L. T. & S. D. Co. vs. Medina Gas, etc., Co., 
162 N. Y., 67; 



to Private Business Corporations 359 

Saranac and L. P. R. R. Co. vs. Arnold, 167 N. Y., 
368. 

A minority shareholder has the right to restrain 
threatened transaction by majority shareholders, when 
the result would be clearly detrimental to his corpo- 
ration. 

*To warrant the interposition of the court in favor 
of the minority shareholders in a corporation or joint 
stock association, as against the contemplated action 
of the majority, where such action is within the cor- 
porate powers, a case must be plainly made out which 
plainly shows that such action is so far opposed to 
the true interests of the corporation itself as to lead 
to the clear inference that no one thus acting could 
have been influenced by any honest desire to secure 
such interests, but that he must have acted with an 
intent to subserve some outside purpose, regardless 
of the consequences to the company, and in a manner 
inconsistent with its interests." 

Opinion by Mr. Judge Peckham in the case of 
Gamble vs. Queen's County Water Co., 123 N. Y., 91. 

In brief. Courts of Equity in their calculation of 
what is great or small are governed, not by the amount 
involved from a property standpoint, but by their esti- 
mate of the principles at stake in the particular in- 
stance before them. 

Also, where two corporations are under the same 
control, and are so conducted as to sacrifice the inter- 
ests of the one to advance those of the other, the 



360 Corporation Law as Applied 

court will grant relief against the situation at the in- 
stance of the person or persons damnified. 
Gamble vs. Queen's County Water Co., 123 N. Y., 91. 

''It is true that courts of equity will not interfere 
to settle a case of mere administration or of policy 
upon which there might be a difference of opinion; 
but the matter proposed is different where the major- 
ity of a corporation propose to benefit themselves at 
the expense of the minority." 

Ibid. 
Menier vs. Telegraph Co., L. R., 9 Chancery, 350. 

While a majority of the stockholders (through the 
directors) may legally control the company's business, 
yet, in so doing, they cannot manipulate the business 
in their own interests to the injury of the other stock- 
holders. 

Mayer vs. Staten Island Ry. Co., 7 St. Rep. (N. Y.), 
245. 

A corporation cannot gratuitously condone or re- 
lease the fraud of a defaultive officer, except by a 
unanimous vote of its stockholders. 
Hazard vs. Durant, 11 R. I., 195 (1875). 

In England, the courts will not permit directors to 
avail themselves of their position to enter into bene- 
ficial contracts with the company. 
Great Luxembourg Ry. vs. Maguay, 25 Beavan, 586. 
Aberdeen Ry. vs. Blaikie, ist Macqueen H. L., 461. 



to Private Business Corporations 361 

Flanagan vs. Great Western Ry. Co., 19 L. T. N. S., 
345. 
A Court of Equity will interfere and protect minor- 
ity stockholders on application. 

Cook on Stock and Stockholders, sees. 643-662, 
and cases cited. 

A favorite modern devise for defrauding investors 
is the "purchase'^ by one corporation of the stock of 
another. 

Ibid. 

Courts will review such contracts, and if fair, sus- 
tain them ; if unfair, will "undo it." 
Ibid, sec. 662. 

The Courts of Equity are ready and reliable in 
remedying the wrong, whenever the fraud can be 
proved. 

Ibid., sees. 643-662. 

"The law requires of the majority of the stockhold- 
ers the utmost good faith in their management and 
control of the corporation as regards the minority, 
and in this respect the majority stand in much the 
same attitude toward the minority that the directors 
sustain toward all the stockholders; thus, where the 
majority are interested in another corporation, and the 
two corporations have contracts between them, it is 
fraudulent for the majority to manage the affairs of 
the first corporation for the benefit of the second." 
Jacobus vs. American Mineral Water Machine Co., 
38 Misc. (N. Y.), 371; yy N. Y. Supp., 898. 



362 Corporation Law as Applied 

^'While a shareholder may ordinarily vote his own 
stock in his own interest, the result of such sharehold- 
er's vote must not be so detrimental to the interests of 
the corporation itself as to lead to the necessary infer- 
ence that the interests of the majority stockholder lie 
wholly outside of and in opposition to the interests 
of the corporation and of the minority of the share- 
holders, and that their action is a wanton or fraudu- 
lent destruction of the rights of such minority. In 
such cases the action of the majority will be scruti- 
nized by a Court of Equity." 

Gamble vs. Water Co. (123 N. Y., 91), supra. 

The courts have held that directors who have vio- 
lated their obligations as such, and mismanaged the 
corporation of which they are officers, etc., are liable 
to the corporation for breach of trust. 

Stahn vs. Catawba Mills, 53 S. C, 519 (1898). 

Farmers Loan and Trust Co. vs. N. Y. & N. R. R. 
Co., 150 N. Y., 410. 

De Neufoille vs. N. Y. & N. R. R. Co., 81 Fed. Rep., 
10. 

Pondir vs. N. Y. L. E. & W. R. R. Co., 72 Hun. 
(N. Y.), 384. 

"* * * directors are personally liable to the cor- 
poration, or in a proper case to any stockholder, for 
losses arising from their fraud, breach of trust or 
gross negligence in the management or disposition of 
the corporate property ; and any person or corporation 
participating in such fraudulent conduct, or corruptly 



to Private Business Corporations 363 

receiving the corporate property, fraudulently disposed 
of, is likewise liable." 

In the leading New Jersey case of 
Wilds vs. Rural Homestead Co., 8 Dickinson (N. J.), 

425, 
the learned and distinguished chancellor quoted Green, 
V. C, and said, in effect, that acts of corporate direct- 
ors in pursuance of a "scheme," even though in them- 
selves infra vires, will be set aside by a Court of 
Equity, if conspicuously unwise and injurious to 
stockholders. Individual stockholders cannot question 
in judicial proceedings the corporate acts of the direct- 
ors if the same are within the powers of the corpora- 
tion and in furtherance of its purposes, and are not 
unlawful, and are done in good faith and in the exer- 
cise of good judgment. 

"Questions of policy, of management, of expedi- 
ency, of contract or actions, of adequacy, of con- 
sideration not grossly disproportionate, of lawful 
appropriation of corporate funds to advance corporate 
interests, are left solely to the honest decision of the 
directors, if their powers are without limitation and 
free from restraint. To hold otherwise would be to 
substitute the judgment and discretion of others in 
the place of theirs." 

Ibid. 

A sale by a trustee directly or indirectly to a cor- 
poration in which he is a large owner is as fraudulent 
as an outright transfer to himself. 
Robbins vs. Butler, 24 Ills., 387, 



364 Corporation Law as Applied 

St. James' Church vs. Church of the Redeemer, 45 
Barb., 356. 
The last-named case was argued at General Term, 
N. Y. Supreme Court (1865), before Leonard, Ingra- 
ham and Barnard, J. J. 

In the decision Mr. Justice Leonard said : 

"When the same person acts in a double capacity 
as agent or trustee, he must see to it that the transac- 
tion is fair and unexceptionable as regards either of 
the parties he so represents. If any motive of personal 
•convenience or interest has been subserved, it will 
constitute a badge of fraud.'' 

See also: 
Perry on Trusts (5th Ed., Boston, 1899), Vol. I., 

sec. 207, p. 302, 
and long list of cases in point. 
Carter vs. Bruce, 46 N. J. Law, 134. 
affirmed in 
47 N. J. Law, 597. 

One of the three grounds for the exercise of equity 
jurisdiction is the existence of a fiduciary relation. 
Marvin vs. Brooks, 84 N. Y., 71, 80; 

Story's Equity Jurisprudence, 13th Ed., sec. 465, and 
note to page 471. 
Concerning the remedies themselves, as we have 
seen, courts of equity take cognizance of all fiduciary 
matters pertaining to corporate affairs, and it is in 
those tribunals that the injured stockholder must seek 
relief. They alone can apply the remedy which the 



to Private Business Corporations 365 

facts of the case warrant and call for. In sequence 
to this the question arises, — what are those remedies? 

Difference between general and local text-books 
considered. — In construing the following pages, which 
contain the answer to this most natural enquiry, it is 
essential to a proper understanding of the subject as 
here treated that there should be distinctly and con- 
stantly in the mind of the reader the difference be- 
tween a local work relating to the particular statutes 
of a single State, or group of States, and purporting 
to afford a working knowledge of the details involved 
in invoking such aid, and a book prepared for gen- 
eral application. This present work is not intended 
to give the various rules of practice in the several 
States ; for while there is a similitude in the need to be 
reached, the practice in most instances is quite diverse, 
— each State having its own code of procedure or 
statutory rules applicable in such matters. In indi- 
vidual cases, as they arise, reference should be had to 
those text-books which contain the lines of correct 
procedure, or where such are wanting, to the decisions 
of the particular court whose aid or protection is 
sought. 

It is only in those rare cases that are without a fit- 
ting rule or a precedent that the practitioner should 
depend for guidance solely upon a work of general 
application. Notwithstanding this technical differ- 
ence, however, there obtain in the various States, as 
has been said, practically the same remedies, reached, 
however, in each by a somewhat different path. 



366 Corporation Law as Applied 

Remedies classified. — The remedies which the 
Courts of Equity, both Federal and State, apply in 
corporate affairs may be generally classed as of three 
kinds : 

(a) Those which are preventive, — that is, where 
an injury is in course of perpetration, or is about to 
be perpetrated. 

{h) Those which compel the doing of some act, 
the non-performance of which will, with reasonable 
certainty, work an injury, and 

(c) Those which afford redress for injuries which 
are already un fait accompli. 

In the first class mentioned, the use of the writ of 
injunction is indicated; in the next the writ of man- 
damus; while in the last the remedy becomes opera- 
tive through the judgment or decree of the court, ob- 
tained in an action in equity. 

In addition to the foregoing, the courts, in the ex- 
ercise of their inherent, long-recognized and well- 
established equity powers, will from time to time 
during the pendency of the action, or upon petition 
or in anticipation thereof, issue such remedial and 
proper orders, as in their sound discretion appear to 
be necessary and appropriate to preserve the status in 
quo, or to prevent injury and injustice. The varying 
states of circumstances in which such orders will be 
issued are so multitudinous and diverse as to utterly 
preclude any possibility of classification or enumera- 
tion; like the rays of light emitted by the solar lu- 



to Private Business Corporations 367 

minary, or the phases of the human mind, — they defy 
the power of numbers. 

Distinction between stockholders suing individually, 
and as a class. — With regard to the right of redress 
for corporate wrongs, there exists a distinction be- 
tween such right when invoked by the individual 
stockholder and when invoked by the stockholders as 
a class: 

First. — In those cases where a stockholder has 
standing in court apart from his associates, there will 
be found on inspection to exist some matter or thing 
in which he is interested in distinction from any of his 
co-stockholders; as in a case where the corporation 
having made and declared a dividend and paid it to 
the other stockholders, refuses to pay him a like profit, 
or where it declines or neglects to issue to him a cer- 
tificate of his stock; for it is plain in the instances 
given that this grievance is a personal one and affects 
him only. 

Second. — The other class is where the injured 
stockholder suffers a wrong in common with his co- 
stockholders ; in such cases, in theory of law, the 
wrong is done not to him individually, but to the 
whole corporation, and the right to pursue his remedy 
accrues to him not as an individual, but as the rep- 
resentative and a distributee of the corporation, which, 
in the eyes of the law, is the real party in interest, and 
the person damnified. 

The familiar instance where the management, at the 



368 Corporation Law as Applied 

suggestion and with the support of the majority, seeks 
an opportunity to exckide the minority from all voice 
in the corporate councils, or seeks to confiscate the 
share of the minority interest, is an illustration of a 
situation where the individual must seek his rights 
as the spokesman of the corporation as a whole. 

A clear and well-defined understanding and appre- 
ciation of the foregoing distinction is absolutely neces- 
sary to the full and complete realization of the posi- 
tion occupied by the shareholder in litigation having 
for its object the remedying of corporate wrongs. 

Broadness of relief in equity. — ''Equity never placed 
any limits to the remedies which it can grant, either 
with respect to their substance, their form or their 
extent; but has alw^ays preserved the elements of flex- 
ibility and expansiveness, so that new ones may be 
invented or old ones modified, in order to meet the 
requirements of every case and to satisfy the needs of 
a progressive social condition, in which new primary 
rights and duties are constantly arising and new kinds 
of wrongs are constantly committed. '^ 
Pomeroy on Equity Jurisprudence, 2d Ed., sec. iii, 
p. 115. 

"It is absolutely impossible to enumerate all the 
special kinds of relief which may be granted, or to 
place any bounds to the power of the courts in shap- 
ing the relief in accordance with the circumstances 
of particular cases." 

Ibid, sec. 170, p. 192. 

In 



to Private Business Corporations 369 

Taylor vs. Salmon, 4 IMylne and Craig, 134, 141, 

Lord Chancellor Cottenham said that a court of equity 
has the power and it is its duty to — •'•'^ ^ "^ adapt its 
practice and course of procedure, as far as possible, 
to the existing state of society, and to apply its juris- 
diction to all those new cases which, from the progress 
daily taking place in the affairs of men, must continu- 
ally arise, and not from too strict an adherence to the 
forms and rules established under very dift'erent cir- 
cumstances, decline to administer justice and to en- 
force rights for which there is no other remedy." 



And here the Federal Court speaks with no uncer- 
tain voice. 

See, — Chicago, Rock Island and Pacific Ry. vs. Union 
Pacific Ry., 47 Fed. Rep., 15, as follows: 

''"^ * "^ I believe most thoroughly that the powers 
of a court of equity are as vast, and its processes and 
procedure as elastic, as all the changing emergencies 
of increasing complex business relations and the pro- 
tection of rights can demand. ^ ^ ^ The powers 
and processes of a court of equity are equal to any and 
every emergency. They are potent to protect the 
humblest indiAddual from the oppression of the mighti- 
est corporation; to protect every corporation from the 
destroying greed of the public ; to stop State or nation 
from spoliating or destroying private rights; to grasp 
with strong hand every corporation and compel it to 



370 Corporation Law as Applied 

perform its contracts of every nature, and do justice 
to every individual." 

The above opinion was by Mr. Justice Brewer. 

As a general rule, presumptions which can apply to 
corporations as well as to individuals, apply alike to 
both, in a gain or loss, and in a solvent corporation 
each stockholder has a certain interest^ though not 
certain as to amount. 

A court of equity will, in some instances, give effect 
to the act of individual stockholders, on the ground 
of their beneficial interests, as in mortgages, etc., etc. 

See 
Clark and Marshall on Private Corporations, Vol. L, 

sec. 7, p. 24, 
and cases cited. 

General consideration of remedy for oppression re- 
sumed. — The leading case in this country on the 
question of suits by stockholders. 
Dodge vs. Woolsey, 59 U. S. (18 How.), 331 to 380 

inclusive, 
(syllabus) has the following: 

"A stockholder in a corporation has a remedy in 
chancery against the directors, to prevent them from 
doing acts which would amount to a violation of the 
charter, or to prevent any misapplication of their cap- 
ital or profits which might lessen the value of the 
shares, if the acts intended to be done amount to what 
is called in law a breach of trust or duty." 

"So, also, a stockholder has a remedy against indi- 



to Private Business Corporations 371 

viduals, in whatsoever character they profess to act, 
if the subject of complaint is an imputed violation of 
a corporate franchise, or the denial of a right grow- 
ing out of it, for which there is not an adequate 
remedy at law. 

"Therefore, where the directors of a bank refused 
to take proper measures to resist the collection of a 
tax, which they themselves believed to have been im- 
posed upon them in violation of their charter, this 
refusal amounted to what in law is termed a breach of 
trust. A stockholder had a right to file a bill in chan- 
cery asking for such a remedy as the case might 
require. 

"If the stockholder be a resident of another State 
than that in which the bank and persons attempting to 
violate its charter, or commit a breach of trust or duty, 
have their domicil, he may file his bill in the courts 
of the United States. He has this right under the 
Constitution and laws of the United States." 

The above is in this country what 

Foss vs. Harbottle (2 Hare, 461) 
is in England, and each marked a new era in the treat- 
ment of the affairs of corporations. 

The opinion of the court in Dodge vs. Woolsey 
was delivered by Mr. Justice Wayne; Taney, Ch. J., 
McLean, Nelson, Grier and Curtis, J. J., assenting; 
Catron, Daniel and Campbell, J. J., dissented, but 
wrote no opinions. 

Counsel for appellant (on his side), stated: 



372 CorporaUon Law as Applied 

*^It is definitely settled, however, by a great weight 
of authorities, that where the charter has invested the 
board of directors with power to manage the concerns 
of the corporation no stockholder, nor any number of 
stockholders, has a right to compel them, the charter 
agents of the body corporate, to do any act contrary 
to their own judgment, exercised in good faith." 

Citing a large number of cases ; inter quos erant, — 
Hersey vs. Veazie, 24 Maine, 9; 
Smith vs. Hard, 12 Mete. (Mass.), 371; 
Robinson vs. Smith, 3 Paige Chan. (N. Y.), 22] 
Russell vs. McLellan, 14 Pickering (Mass.), 63, 69; 
Angel and Ames on Corporations, sees. 560-565 ; 
Colquitt vs. Howard, 11 Ga., 556. 

Counsel for respondent, in his answering brief, said : 

'*We claim under such circumstances a stockholder 
has a clear right to intervene." 
Citing, Robinson vs. Smith, 3 Paige (N. Y.), 233; 
Bayless vs. Orne, i Freeman (Miss.), 161; 
Hichens vs. Congreve, 4 Russell (Eng. Chancery 

Reps.), 562; 
Hodges vs. N. E. Screw Co. et al, i R. I., 312; 
Smith vs. Swormstedt, 16 How. (U. S.) ; 288; 
Angel and Ames on Corporations, sec. 312. 

Among the things settled by this case is the follow- 
ing: 

*'It is no longer doubted, either in England or the 
United States, that Courts of Equity, in both, have a 



to Private Business Corporations 373 

jurisdiction over corporations, at the instance of one 
or more of their members, to apply preventive reme- 
dies by injunction, to restrain those who administer 
them from doing acts which would amount to a viola- 
tion of charters, or to prevent any misapplication of 
their capital or profits which might result in lessening 
the dividend of stockholders, or the value of their 
shares, as either may be protected by the franchises of 
a corporation, if the acts intended to be done create 
what is in the law denominated a breach of trust. And 
the jurisdiction extends to enquire into, and to enjoin, 
as the case may require that to be done, any proceed- 
ings by individuals, in whatsoever character they may 
profess to act, if the subject of complaint is an im- 
puted violation of a corporate franchise or the denial 
of a right growing out of it, for which there is not an 
adequate remedy at law." 

Dodge vs. Woolsey, supra (59 U. S. [18 How.], 331). 

Such acts must, however, be done through the in- 
strumentality of officers or agents in such a manner 
as the charter or governing statute authorizes. 
Citing, Talmadge vs. North Am. Coal Co., 3 Head 
(Tenn.), 337. 

Assuming, then, that the charter or governing stat- 
ute of a particular corporation is, under the Constitu- 
tion of the United States and that of the particular 
State, within the powers of the legislature, it consti- 
tutes the index to the objects for which the corpora- 
tion was created and to the powers with which it has 
been endowed. An exception to this principle is that 



374 Corporation Law as Applied 

corporations became answerable, under many circum- 
stances, for the ultra vires, fraudulent, or tortious acts 
of the officers and agents, though such acts are not 
authorized by their charter; and, as we will see here- 
after, the rule is loaded down with other exceptions 
and qualifications. 
See 
The City of Aurora vs. West, 9th Indiana, 74 ; 
opinion by Perkins, J. 

"Indeed it is too well settled to admit of question 
that a court of chancery has no peculiar jurisdiction 
over corporations to restrain them in the exercise of 
their powers, control their action, or prevent them 
from violating their charter, in cases where there is 
no fraud or breach of trust alleged as the foundation 
of the claim for equitable relief. 

''Their rights and duties are regulated and governed 
by the common law, which in most cases furnishes 
ample remedies for any excess or abuse of corporate 
powers and privileges which may injuriously affect 
either public or private rights. It is only where there 
is no plain or adequate remedy at law, and a case is 
presented which entitles a party to equitable relief, 
under some head of chancery jurisdiction, that a bill 
in equity can be maintained against a corporation. 
And this rule is applicable to stockholders as well as 
to other persons." 

Opinion of Bigelow, J., in 
Treadwell vs. Salisbury Mfg. Co., 73 Mass. (7 Gray), 

393. 399. 



to Private Business Corporations 375 

Citing, Angel and Ames on Corporations, sec. 312; 
Grant on Corporations, sees. 7-271 ; 
Morley vs. Alston, i Phil. Ch., 790; 
Atty. General, etc., vs. Utica Ins. Co., etc., 2 Johns 
Ch. (N. Y.), 37 (1856). 

In the notes to 

People vs. Ballard (supra), 134 N. Y., 
an extensive resume was made and the question of 
the power of the Court of Chancery over corporations 
discussed, — quod vide. 

While the decision applies most particularly to the 
State of New York, the general trend of all is to show 
and establish the fact that the Equity Courts have 
jurisdiction, in a special manner, over all corporate 
matters where the fiduciary relation exists. 

In actions by stockholders of corporations which 
assail the acts of their directors or trustees, those 
courts will not interfere unless the corporate powers 
have been illegally or unconscionably executed, or 
unless it be made to appear that the acts complained 
of were fraudulent or collusive or destructive of the 
rights of stockholders. Mere errors of judgment are 
not sufficient grounds for equity interference. 
Leslie vs. Lorillard, no N. Y., 519. 

In 
Erwin et al. vs. Oregon Ry. and Nav. Co., 20 Fed. 

Rep., 577, 
the rule was applied. A majority of the stockholders 
who were authorized by law to dissolve the corpora- 



376 Corporation Law as Applied 

tion and distribute its assets, undertook to pervert the 
forms of law by selling the property to themselves at 
an unfair appraisal. 

It was held, that although the courts would not in- 
quire into the motives of the majority as to those acts 
which were within the exercise of their legal powers, 
they had no right to sell the property to themselves at 
an unfair price, and they must account to the stock- 
holders for its value. 

Furthermore, that where a corporation is practi- 
cally dissolved, and all its property sold by the action 
of the directors and a majority of the stockholders, 
the minority stockholders may maintain a suit in 
equity directly against the persons who have pur- 
chased the property for an accounting, without mak- 
ing the corporation a party, and further that in such 
an action one or more of the minority stockholders 
may sue without joining the others. 

Ibid. 



In 



Ryan vs. L. A. & N. W. Ry. Co., 21 Kansas, 365, 404, 
it was laid down : 

^'Even if the directors and officers of these corpo- 
rations were willing to prosecute, it would be a mock- 
ery to permit a suit against themselves to be brought 
and prosecuted under their management to obtain the 
relief sought in this action." 



to Private Business Corporations 377 

Citing, Heath vs. Erie R. R. Co., 8 Blatchford(U. S.), 

347; 
March vs. Eastern R. A. Co., 40 N. H., 548; 
Dodge vs. Woolsey, 18 How. (U. S.), 331, 341; 
Robinson et al. vs. Smith, 3 Paige Ch. (N. Y.), 222. 

Where the majority are illegally pursuing a course 
in the name of the corporation which is in violation 
of the right of other stockholders and cannot be other- 
wise restrained, equity will interfere. 
Barr vs. N. Y. L. E. & W. R. R. Co., 96 N. Y., 444. 

"Mere knowledge that wrongs have already been 
committed, for which the corporation is entitled to 
redress in an action, would not deprive a transferee of 
his right to sue; nor would the fact that the vendor 
had barred himself alone bar a purchaser in good faith, 
unless the fact were known to him at the time. And 
the acquiescence of the original holder in illegal acts 
of the managing agents will never bind a subsequent 
holder of that stock to submit to future acts, whether 
of a similar or different character." 
Spelling on Private Corporations, Vol. I., sec. 468, 

p. 507. 

The courts have been careful not to define ''fraud" 
so strictly that they might be estopped from prevent- 
ing, punishing or remedying fraudulent transactions. 
See article, "Fraud," in Encyclopaedia Britannica. 

Notice to corporation, as a condition precedent to 
suit. — In Massachusetts, in 

Doherty vs. Mercantile Trust Co., 184 Mass., 590, 
593 (1903). 



378 Corporation Law as Applied 

Loring, J., in conformity with the somewhat narrow 
rulings of the earlier cases, held : 

"It is not enough to enable a stockholder to bring a 
bill to enforce, in behalf of a corporation, the rights 
which, if successful, will accrue to the corporation, 
to make a naked request that such a bill should be 
brought, without submitting to the directors the facts 
upon which it could be maintained;" 
citing, among others, 

Dilloway vs. Boston Gas Light Co., 174 Mass., 80, 
Hawes vs. Oakland, 104 U. S., 450. 

In Rhode Island it was held that a stockholder on 
refusal of the corporation to redress or prevent a 
wrong may sue for himself and his co-stockholders, 
making the corporation a co-defendant. 

Hazard vs. Durant, 11 R. L, 195 (1875). 

This leading case was brought by a stockholder of 
the notorious "Credit Mobilier Company of America." 
The main opinion was by Durfee, C. J., who discussed 
at considerable length the right of the stockholder to 
sue and the extent to which the corporation must have 
notice; the whole opinion should be read with care. 
It supports the truly equitable doctrine laid down in 
Brinkerhoff vs. Bostwick, supra (88 N. Y., 52). 

"In an action by a stockholder against the corpora- 
tion, an application for redress within the corporation, 
and refusal, need not be alleged if it be shown that 
the directors or managing board are themselves the 
wrongdoers in some alleged breach of trust or fraud- 



to Private Business Corporations 379 

ulent misappropriation of the corporate property, and 
have a majority of the stock so as to control corporate 
action." 

This quotation is from syllabus in — 
Stahn vs. Catawba Mills, 53 South Carolina, 519 

(1898). 

This clear and concise opinion is by Mr. Justice 
Jones. It holds, inter alia, the following : 

''We think the complaint shows facts from which 
the court could reasonably infer that plaintiff could 
not obtain redress within the corporation, in which 
case it is not necessary to allege facts showing an 
honest effort to procure corporate action." 

In the case of 
Wengel vs. Palmetto Brewing Co., 48 S. C, 80, 
the court (following 

Latimer vs. Richmond R. R. Co., post) 
declared the principle which must govern in such a 
case: 

"The general rule undoubtedly is, that when the 
directors or managing board of a corporation are 
charged with mismanagement or misappropriation of 
the corporate property, the action to restrain or redress 
such wrong must be instituted by the corporation, 
since the conduct complained of is a breach of the trust 
relation between the directors and the corporation. 
But to this general rule there are well-recognized ex- 
ceptions, viz. : When the directors or managing board 
do, or threaten to do, some act ultra vires, or some act 



380 Corporation Law as Applied 

of oppression or illegality injurious to the corporation, 
or, in violation of the rights of stockholders, to pre- 
vent injustice a stockholder is permitted to maintain 
an action in his own name. 

"This is substantially the rule declared in 
Latimer vs. Richmond R. R. Co., 39 S. C, 44, 
following and approving the principle announced in 
Hawes vs. Oakland, 104 U. S., 450. 

"Further, before a stockholder can maintain a suit 
in these exceptional cases he must show that he has 
endeavored to get redress of his grievances within the 
corporation, or he must show facts which would jus- 
tify a court in concluding that an effort for redress 
within the corporation would be unavailing. 

"It is also stated as a well-established rule that an 
application for redress within the corporation and re- 
fusal need not be alleged, if it be shown that the 
directors or managing board are themselves the 
wrongdoers in some alleged breach of trust or fraud- 
ulent misappropriation of the corporate property, and 
have control of a majority of the stock so as to con- 
trol corporate action. In such a case it is reasonable 
to infer that an effort for redress within the corpora- 
tion would be unavailing." 

Citing, Brewer vs. Boston Theater, etc., 104 Mass., 

378, 387; 
Eschwiller vs. Stovel, 78 Wis., 316 (S. C.) ; 
Miner vs. Belle Isle Ice Co., 17 L. R. A. (Mich.), 417; 



to Private Business Corporations 381 

Also, Wheeler vs. Pullman Iron, etc., Co., 17 L. R. 

A. (Ills.), 821; 
Stahn vs. Catawba Mills, supra. 

The above is given in cxtenso, for the reason that 
it presents an able statement of what the rule is, in 
such cases, as laid down in the Federal Courts and, 
with one or two exceptions, in every State. 

The principle w^e have noted in regard to the right 
of the injured stockholder to bring an action against 
the corporation, and affirming the distinction between 
suits by a stockholder individually and those brought 
by him as one of a class, i. e., in behalf of himself and 
all the stockholders ''similarly situated," is found in, — 

Barr vs. N. Y., L. E. & W. R. R. Co., 96 N. Y., 444. 

Niles, etc., vs. The N. Y. C. & H. R. R. Co., 176 N. Y., 
119 (1903). 
In 
Flynn vs. Brooklyn City R. R., 158 N. Y., 507, 

Mr. Judge Vann said : 

"While courts cannot compel directors or stockhold- 
ers, proceeding by the vote of a majority, to act wisely, 
they can compel them to act honestly, or undo their 
work if they act otherwise. Where the majority of 
the directors, or stockholders, or both, acting in bad 
faith, carry into effect a scheme which even if lawful 
upon its face is intended to circumvent the minority 
stockholders and defraud them out of their legal 
rights, the courts may interfere and remedy the wrong. 



382 Corporation Law as Applied 

Action on the part of directors or stockholders, pur- 
suant to a fraudulent scheme designed to injure the 
other stockholders, will sustain an action by the cor- 
poration; or, if it refuses to act, by a stockholder in 
its stead, for the benefit of all the injured stockhold- 
ers." 

If it appears that it would be useless to give the 
usual notice and make demand of the corporation to 
bring suit, the stockholder suing in his representative 
capacity need neither make the same nor plead it. 
Boaz vs. Sterlingworth Ry. Co., 68 App. Div. i (N. Y. 
Sup. Ct, 1st Dept, 1902). 

Opinion by Mr. Justice McLaughlin, all concurring. 
Sage vs. Culver, 147 N. Y., 241. 

In general, the corporation must sue in respect to 
a claim, etc., but an exception is where a fraud is con- 
mitted by persons who can command a majority of 
the votes; the reason is plain, as, unless such an ex- 
ception were allowed, it would be in the power of the 
majority to defraud the minority with impunity. 

Mason vs. Harris, L. R., 11 Ch. D., 97 (1879). 

The stockholder, suing as such, need not make de- 
mand nor plead it. See 

Sage vs. Culver, 147 N. Y., 241. 

"The tendency of the discussion and judgments of 
the court of chancery in Great Britain and of the 
courts of this country is to concede the existence of 
a distinct and positive right of property in the indi- 
viduals composing the corporation, in its capital and 
business, which is subject in the main to the manage- 



to Private Business Corporations 383 

ment and control of the corporation itself; but that 
causes may arise where the corporators may assert not 
only their own right, but the rights of the corporate 
body." 

See opinion of Mr. Justice Campbell (1855), in 
Bacon vs. Robertson, 18 How. (59 U. S.), 480, 486. 

The rule is now settled in New York, that where 
it is alleged in the complaint that the corporation 
remains under the paramount influence of the very 
directors against whom the action is directed, non- 
assenting stockholders have standing in equity, to sue 
in their own names, without demand, making the cor- 
poration a party defendant. 

Nash vs. Hall, etc., 11 Misc. Rep. (N. Y.), 468; af- 
firmed, 90 Hun., 354; 
Cook on Corporations (4th Ed.), p. 741. 

Stock newly bought, and for ulterior object, carries 
right to sue. — The fact that the stock was purchased 
just prior to commencement of suit, or that ulterior 
ends are promoted by the litigation, will not be con- 
<^idered adversely by a court of equity, providing that 
a wrong exists which the court has power to redress. 
Ramsey vs. Gould, 57 Barbour (N. Y.), 398. 

Equity protects small holder. — Minority rights will 
be protected, even where those in control own substan- 
tially all of the stock. 

Buffalo Loan Trust and Safe Deposit Co. vs Medina 
Gas, etc., Co., 162 N. Y., 6y) 



384 Corporation Law as Applied 

Saranac and Lake P. R. R. Co. vs. Arnold, 167 N. Y., 

368. 

"There is no reason why, if wrong has been done, or 
is Hkely to be done, the holder of one share should 
not be as fully protected in his rights as the largest 
holder." 
Nash vs. Hall, etc. (11 Misc. [N. Y.], 468), supra. 

"An owner of one share is to be protected by a Court 
of Justice, equally with the owner of a thousand 
shares." 

Cook on Corporations, 4th Ed., par. 735. 

Reaches abuse of joint control. — Where two corpo- 
rations under the same control are conducted by the 
control in such a manner as to sacrifice the interests 
of one corporation in order to advance those of the 
other, a minority stockholder of the corporation dam- 
nified is entitled to equitable relief against the situ- 
ation. 

Jacobus vs. Amer. Mineral Water Machine Co., 38 
Misc. (N. Y.), 371 ; yy N. Y. Supp., 898 (1902). 

See extract from decision in the foregoing case, 
supra. 

"It needs no refinement of the decisions to show 
that the cause thus presented is one for equitable cog- 
nizance. Within all of the authorities, a court of 
equity in the proper jurisdiction should intervene 
under such circumstances for the protection of the 
stockholders and creditors, both by injunction and by 
the appointment of a receiver to represent the com- 



to Private Business Corporations 385 

pany, since the directors by thus grossly abusing their 

trust have become disquaHfied to act." 

Hallenborg vs. Greene, 66 App. Div., 590 (N. Y., 

1901); 
opinion by Mr. Justice Laughhn. 

'It must not be overlooked that while a shareholder 
may do likewise {i. e., ordinarily vote his stock in his 
own interest), still, as pointed out by the learned jus- 
tice who wrote the opinion (125 N. Y., 98; 25 N. E., 
202; 9 L. R. A. 527), 'their (the stockholders') action 
resulting from such vote must not be so detrimental 
to the interests of the corporation itself as to lead to 
the necessary inference that the interests of the ma- 
jority of the stockholders lie wholly outside of and in 
opposition to the interests of the corporation and of 
the minority of the shareholders, and that their action 
is a wanton or fraudulent destruction of the rights 
of such minority.' In such cases, says the court, 'it 
may be stated that the action of the majority of the 
shareholders may be subjected to the scrutiny of a 
court of equity at the suit of the minority share- 
holders.' 

"I am of the opinion that the contemplated action 
of the shareholders is within the rule as stated. No 
explanation is vouchsafed to the court upon this appli- 
cation for the proposed action in canceling the agree- 
ment, whereby two per cent, is guaranteed to the 
stockholders of the Postal Company of Texas, by the 
series of subsidiary companies directly or indirectly 
controlling the Postal Company of Texas, and in like 



386 Corporation Law as Applied 

manner owning nearly all of its stock, with the excep- 
tion of that owned by the plaintiff and virtually own- 
ing and controlling the Erie Company, which is the 
company liable to pay two per cent, guaranteed, — has 
a direct and positive interest in the cancelation of the 
agreement, to wit: the saving of the two per cent, to 
the owners of the stock, other than that which it con- 
trols. 

"A point is made by defendant that no fraud is 
shown, but Judge Peckham clearly states (page 98, 
123 N. Y.; page 202, 25 N. E.; 9 L. R. A., 527), 
what he understands by 'fraud,' in the sense that that 
term is used by him ; i. e., action which is oppressive 
to the minority stockholders. I think the inference 
from the facts which stand uncontradicted upon this 
application is that the proposed action of the stock- 
holders would work a fraud upon the plaintiff. 

'The recent case of Farmers' Loan and Trust Co. 
vs. New York and N. H. Co., 150 N. Y., 410; 44 
N.E., 1043; 34 L. A. R., y(i\ 55 Am. St. Rep., 689; 
and the cases therein cited in the opinion of Judge 
Martin, afford ample support to the conclusion I have 
reached, \i. e., granting prayer of plaintiff for equita- 
ble relief]." 

McLeary vs. Erie Telegraph and Telephone Co., y(i 
N. Y., Supp., 712. 

The rules of the High Court of Chancery of Eng- 
land in this connection have been adopted by the courts 
of the United States. 



to Private Business Corporations 387 

Bates on Federal Equity Procedure, Vol I., sec. 526, 

p. 540. 
Citing, 13 How. (U. S.), 563; 
Re Debs., 158 U. S., 577; 
144U. S., 550; 
2 Ball. (U. S.),402. 

The foregoing text-writer (Bates), when treating 
of the restrictive power of the tribunal appropriate to 
such matters, says injunction is ''appropriately termed 
the strong arm of the Court of Equity; Its office is 
to require a party to do, or to refrain from doing, a 
particular thing according to the exigency of the occa- 
sion, as indicated on the face of the writ.'' 

Bates, supra, Vol. I,, sec. 3, p. 3. 

Principles and authorities generally. — We have 
shown that there are two kinds of stockholders' ac- 
tions. Of the first, in which the stockholder sues in 
his own name and for himself as an individual, it is 
unnecessary to say anything further, since they are 
conducted as other actions. 

The second kind of action, however, is an entirely 
different matter, and different rules and conditions 
prevail. Formerly, the right of the stockholder to 
sue at all was questioned. It v/as strongly later con- 
tended that in all cases where the stockholder is suing 
for himself and "others similarly situated" he should 
make a previous demand that the corporation, i. e., 
the directors, should begin the proper litigation, and 
in addition, that the action would not be permitted 



388 Corporation Law as Applied 

until the instituting papers showed that there was (or 
would be) an injury; that the shareholder deeming 
himself aggrieved had made such demand; and that 
the corporation refused to sue. 

The right of the stockholder to sue was established, 
as we have seen above, in England by 
Foss vs. Harbottle, supra (2 Hare, 461), 
and in this country by 
Dodge vs. Woolsey, supra, (59 U. S. [18 How.], 331). 

Notwithstanding these cases and others like them, 
the subject of stockholders' actions, down to a com- 
paratively recent date, has been confined within com- 
paratively narrow limits, and the principles and basic 
ideas involved have in a large measure either been 
misconceived or misunderstood. However, the lead- 
ing case in the New York Court of Appeals, 

Brinckerhoff vs. Bostwick (88 N. Y., 52), 
was important, not so much in establishing the rule 
which had long before existed, but in bringing the 
principles extending out therefrom into bold relief. 
Now that the clouds of doubt which formerly obscured 
the subject have been dispelled, and all the conditions, 
rules and principles applicable to the situation are fully 
understood and well established, they may be thus 
briefly stated, viz. : 

A stockholder deeming himself aggrieved by reason 
of some injury done, or about to be done, to the cor- 
porate property may sue for himself and for other co- 
stockholders "similarly situated," when (a) he shows 



to Private Business Corporations 389 

to the court the injury accomplished or intended; {h) 
when he has demanded of the corporation — i. e., the 
directors,-; — that they bring the action and they re- 
fuse, or (c) when it is shown to the court that any 
demand upon the corporation or its directors would 
necessarily, from the surrounding and attending cir- 
cumstances, be futile and of no avail. 

The cases appearing earlier in this chapter recog- 
nize the right of one stockholder to sue in his repre- 
sentative capactiy, i. e., as one of a class. 

In a celebrated English case of recent date it was held 
that even where the company was as yet not actually 
formed, — those who had taken upon themselves the 
character of proposed corporators were entitled to the 
protection of the court for the benefit of all persons 
who had agreed to be and might, therefore, become 
members of the company, as against the machinations 
of their quasi-d^x^oXoxs. 

Gluckstein vs. Barnes, Appeals cases, 1900, House of 
Lords, p. 240. 

This case, decided by one of the highest tribunals, 
shows to what great extent the courts will go in pro- 
tecting the interests of shareholders suffering injury 
at the hands of wrong-doing trustees and directors. 
The same solicitude is present as well, in the courts of 
the United States and of the individual States, as we 
have abundantly shown. 

Directors are jointly and severally liable for all 



390 Corporation Law as Applied 

wrongful acts to which they are parties or privies, and 
also for the result of joint neglect. 

Parker vs. McKenna, L. R., lo Chan. App., 96; 

General Exchange Bank vs. Horner, L. R., 9 Eq. 
Cases, 480. 

Although it has not been firmly established until a 
comparatively recent date that a stockholder could, In 
behalf of himself and "others similarly situated," sue 
the corporation under the circumstances noted, — vide 

Brinckerhoff vs. Bostwick (88 N. Y., 52), 

and other cases, — yet we find that as far back as 1878, 
in Indiana, the true idea was brought out, in his 
verbis : 

"Held, also that an action would lie on behalf of a 
stockholder of the L. M. & B. R. Co. without previ- 
ous demand by him for redress on the directors of 
said companies and refusal by them, against all said 
companies, for an injunction, and to declare void said 
agreement and assignment." 

Board of Comm'rs of Tippecanoe County vs. Lafay- 
ette, 50 Ind., 85 (syllabus). 

Opinion by Biddle, J. 

The above case is one of great interest and should 
be read in its entirety. 

Possibly the most important English case regarding 
the right of the minority shareholders to sue, etc., and 
one that has been and is constantly cited in the 
English courts, was Menier vs. Hooper's Telegraph 



to Private Business Corporations 391 

Works, before the lords justices (1874), L. R., 9 Ch., 
350. Lord Justice James therein said : 

"I am of opinion that the order of the V. C. in this 
case is quite right. The case made by the bill is very 
shortly this : The defendants who have a majority of 
shares in the company have made an arrangement 
affecting the whole company, the interest in which be- 
longs to the minority as well as to the majority. They 
have dealt with them in consideration of their ob- 
taining for themselves certain advantages. Hooper's 
company have obtained certain advantages for dealing 
with something which was the property of the whole 
company. The real case, therefore, is that it is the 
minority of the shareholders who say, in effect and in 
substance, the majority have divided the assets of the 
company more or less between themselves to the ex- 
clusion of the minority. I think it would be a shock- 
ing thing to say that that could be done, because, if so, 
the majority might divide the whole assets of the com- 
pany and pass a resolution saying that everything must 
be given to them and that the minority should have 
nothing to do with it, that is, assuming the case is 
made out as alleged by the bill. I say that the major- 
ity have put something into their pockets at the ex- 
pense of the minority. If so, it appears to me that the 
minority have a right to have their share of those 
benefits ascertained for them in the best way the court 
can do it, and given to them." 

Citing, Foss vs. Harbottle, 2 Hare, 461, 
and also. 



392 Corporation Law as Applied 

Gray vs. Lewis, 29 L. T. R. (N. S.), 12- L. R, 8 Ch., 

1035, 

Atwood vs. Merry weather, L. Rep., 5 Eq., 464, note. 

In a comparatively recent case (1901), in the Brit- 
ish colony of New South Wales, we find that, unde- 
terred by differences in latitude and longitude, the 
principles of equity prevail in "the furthermost isles 
of the sea." 

In 
Davis vs. The Commercial Publishing Co., of Sid- 
ney, Ltd., State Reports, New South Wales, Vol. 
L (i90i),p. 37, 
Ch. J. in Equity Simpson said : 

"Whenever a member of a corporation has, by the 
constitution of the corporation, or by contract, a special 
right or interest, such member has the right to sue the 
corporation for the protection of such individual right 
or interest, even though all the other members have 
similar rights and interests." 

The syllabus in the above case, which is sustained 
by the holdings, is: 

"So long as the articles of association of a company 
remain unaltered, a majority cannot take away rights 
that are vested by the articles in each shareholder. 

"A shareholder is entitled to maintain a suit on be- 
half of himself and other shareholders against the di- 
rectors of a company, acting in excess of the author- 
ity conferred upon them by the articles of association, 
where such action involves the taking away of an 



to Private Business Corporations 393 

individual right vested in the shareholder by the 

articles." 

Citing, Mozley vs. Alston, i Ph., 790; 

Foss vs. Harbottle, 2 Hare, 461. 

In Mr. Justice Simpson's opinion, from which we 
have just quoted, 

McDougal vs. Gardiner, i Ch. D., 13, 
is distinguished, and 
Menier vs. Hooper's Telegraph Works, L. R., 9 Ch., 

350, 
followed. 

Though the Irish reports are somewhat meager in 
regard to cases affecting corporations, yet where these 
have been the subject of litigation it will be found 
that the same equitable principles prevail. 

Among the most important is 
The Atty. Genl. vs. Belfast Corporation (1885), in 
the Irish High Court of Chancery and Rolls, i 
Irish Rep., 200. 

Lord Chancellor Brady therein quoted from Lord 
Hardwicke in the case of 

Charitable Association vs. Sutton, supra (2d Atkyns, 
400) : 

"* * * I apprehend that there prevails the same 
distinction at law as in equity. So long as a corpo- 
rator acts within the scope of his powers, although he 
does so irregularly, and perhaps mistakenly, he is not 
responsible unless he was influenced by malice; but if 



394 Corporation Law as Applied 

he do a wrongful act not within his powers— if he ex- 
ceed them — then I consider he is responsible, just as 
any private person would be.'' 

It should be stated that the foregoing case concerned 
a municipal corporation. 



to Private Business Corporations 395 



CHAPTER XXII. 

Amalgamation — Combination — Consolidation 
— Merger; and herein also of conspiracy. 

Definitions of these terms. — Question of conspiracy- 
is involved. — Absorption of going concern re- 
quires unanimous consent. — Railroad cases are 
most numerous decisions in point. — Combina- 
tions known as trusts not treated of herein. — 
Leading authorities considered and cited. — Essen- 
tials of amalgamation stated. — Further authorities 
in support of text. 

Definitions of these terms. — The various methods 
of combining two or more corporations are indicated 
in the title. While the distinguishment of the exact 
shades of meaning conveyed by these terms is not 
essential to this work, yet it may be useful to define 
them here. 

Amalgamation, as applied to the subject of this 
work, is defined in the Standard Dictionary as "A 
union of different corporations to form a homogene- 
ous whole or a new body." Combination is in like 
connection "the union or alliance of persons for the 
prosecution of a common object" ; and it is to be noted 
that in this definition, under the head of synonym. 



396 Corporation Laiv as Applied 

there appears the word "conspiracy." ConsoHdation 
is defined as a correlative term and means practically 
the same thing; while merger is the extinguishment 
by law of some lesser estate by uniting it with a 
greater. 

Combination and consolidation are practically alike, 
— each of the component parts retaining, at least tech- 
nically, its own identity. 

While ''amalgamation" means that component parts 
become so thoroughly intermingled that the identity 
of each is lost in the compound whole, the prime 
idea is the equality of the component parts at the 
inception; "merger," however, implies that one of 
two or more component parts has so absorbed the 
others that the identity of the absorbed is lost in the 
personality of the absorber. Merger, therefore, sug- 
gests greater and lesser component parts, — the idea 
seeming to be that some one part so incorporates the 
others that those which are thus annexed become a 
part of the continuing factor. 

To illustrate the foregoing: A corporation ac- 
quires the property, etc., of another corporation. In 
a case where there is "merger" the acquiring corpora- 
tion still exists. What it has done is to add the 
merged corporation to, and make it a part of itself; 
whereas in "amalgamation," in theory at least and ac- 
cording to the signification of words, the two parts 
thus welded together, become another and different 
entity, both former identities being lost in the new. 

In regard to "combination" and "consolidation," each 



to Private Business Corporations 397 

of the two or more corporations uniting, retains its iden- 
tity; but their interests, management, etc., are unified 
and they henceforth exist as members of a new body. 
For instance, the union of the United States may be 
styled a consoHdation or combination, but not an 
amalgamation or merger. 

When any of these terms is applied to the union of 
two or more corporations, the general idea conveyed 
thereby is that one corporation has absorbed the other. 

When such acts have been done in good faith, and 
for the benefit of all concerned, the courts have ever 
been ready to countenance and to support the acts; 
but when the contrary obtains, quite another condition 
prevails. 

Question of conspiracy is involved. — Possibly no 
method of stock- jobbing jugglery has been more suc- 
cessful in mulcting minority stockholders than the ab- 
sorption of one corporation by another. 

Mr. Cook, in his valuable work, thus speaks : 

*'It is a favorite modern device of defrauding, i. e., 
the purchase by a corporation of stock of another cor- 
poration." 

Cook on Corporations, sec. 648, p. 1262. 

And this subject particularly brings up the consid- 
eration of conspiracy, — a thing which equity has ever 
looked upon with horror and revulsion. 

Whenever, in the varied course of business it has 
been found that the interests of any given number of 
corporations demand a union of their purpose and ef- 



398 Corporation Law as Applied 

forts, and they are combined together equitably, 
namely, with like effect to every stockholder, it is a 
transaction which the courts will sanction, approve of 
and validify. When, however, — as in by far too many 
cases, — it is the unavowed object and effect to '^freeze 
out" or ''squeeze out," as it is variously termed, the 
minority stockholders, then it becomes in its legal as- 
pect a combination of evil men for an unlawful pur- 
pose, i. e., a conspiracy. In the history of our judica- 
ture, with a few painful exceptions, our courts have 
with stern and inflexible honesty and justice redressed 
the wrongs of this nature whenever their protection 
has been duly invoked. 

Absorption of going concern requires unanimous 
consent. — The subject has assumed almost all the 
forms that human ingenuity can devise. It is beyond 
the scope of this work to give any more than a brief 
outline of the law as it is applied in such matters, but 
we are warranted and sustained by precedent in say- 
ing that the general rule obtains that in all cases where 
the corporation is a sound, or as it is commonly styled, 
a ''going" concern, its absorption by another corpo- 
ration cannot be lawfully consummated against the 
protest of a single member, unless the right to take 
such step was existent at the time when the stock- 
holder obtained his interest in the company. 

(See the subject of power to alienate corporate prop- 
erty and rights, as set forth in the remaining chapters, 
particularly Chapters XXII. to XXIV., inclusive.) 



to Private Business Corporations 399 

Railroad cases are most numerous decisions in point. 

— The greater number of the decisions in such mat- 
ters have, until a recent time, been the consolidation of 
railroads, and various reasons have been brought for- 
ward to sustain and fortify such combinations ; but be- 
cause those corporations are gz/a^-f-public concerns, such 
cases for the most part are not germane to the pur- 
poses of this work. The principal cases that apply will 
appear later in the chapter. 

Combinations known as trusts not treated of herein. 

— Within the last few years, however, among the 
purely business corporations, there has been much in 
vogue the consolidation or combination of their prop- 
erty and interests. The result has been the formation 
of what are termed "trusts" ; and among the usual 
reasons given to stockholders for such actions have 
been the control of the market, the fixing of prices 
and the prevention of hurtful competition. The near- 
est approach to this topic contained in this work will 
be found in the next chapter, ''Holding Companies." 

It is not the purpose of the author to go at length or 
even at all into the questions raised by this policy of 
control; that subject pertains to the writer on political 
economy rather than to one dealing with the matter in 
hand. Hence this work does not concern itself there- 
with to treat of the same, excepting so far as is nec- 
essary to show to the injured stockholder how far 
his rights extend in the premises, and the course re- 
quired to protect those rights. 

Leading authorities considered and cited. — In the 



400 Corporation Law as Applied 

State of Connecticut the powers of corporation under 
merger and consolidation are fully discussed in Mead 
vs. N. Y. H. & N. R. R. Co., 45 Conn., 222; and in 
Whittlesey vs. H. P. & F. R. R. Co., 23 Conn., 431. 

In a decision much cited in the British Courts of 
Equity Vice-Chancellor Sir W, Page- Wood said: 

ii^ * * But there is nothing to make the court hold 
that the liquidators can compel any person to become 
bound by any of the obligations attaching on the hold- 
ers of such shares. Everyone is bound by any con- 
tract he may enter into, and if any shareholder actually 
accepts the shares so offered him by the liquidators he 
therefore becomes bound as a member of the new com- 
pany, and further, unless he dissents within the time 
and in the manner specified by the Acts of Parliament, 
he is so far bound that he can get nothing else for his 
own shares except these new shares, whether he likes 
them or not. He may have lost all his rights over 
his own shares by his delay, but he may, nevertheless, 
decline to take this consideration for his shares if he 
thinks that the consideration would prove burdensome 
rather than beneficial. "^ * *" 

Bank of Hindustan vs. China, etc. (Higg's Case), 2 
Hemming and Miller's Rep., 666. 

"A majority of the stockholders cannot by a reor- 
ganization bind the minority so as to continue their 
property in the new corporate venture." 

Thompson on Corporations, Vol. I., sec. 272. 

In Clearwater vs. Meredith et al., ist Wallace 68 



to Private Business Corporations 401 

(U. S.), p. 25, the opinion by Mr. Justice David Davis 
states the governing principle : 

"When any person takes stock in a railroad corpo- 
ration he has entered into a contract with the company 
that his interests shall be subject to the direction and 
control of the proper authorities of the corporation to 
accomplish the object for which the company was or- 
ganized. He does not agree that the improvement to 
which he subscribed should be changed in its purposes 
and character at the will and pleasure of a majority of 
the stockholders so that new responsibilities, and, it 
may be, new hazard are added to the original under- 
taking. He may be very willing to embark in one 
enterprise and unwilling to engage in another. * * * 

"There was no power to force him (a stockholder) 
to join the new corporation and to receive stock in it, 
on surrender of his stock in the old company." 

It ust not be lost sight of in regard to this subject, 
and it will accordingly be repeated, that most of the 
reported cases concerning consolidation, etc., are in 
litigations arising from the combination of two or 
more railroad companies, and, therefore, in the deter- 
mining of questions involving purely private business 
corporations due regard should be had to the differ- 
ence between the latter and public or quasi-public cor- 
porations. 

"The contract of consolidation is an act of dissolu- 
tion in form and substance of the Lebanon Company, 
and the corporation cannot, in the act of dissolution, 
dispose of the rights of its members. The act of 



402 Corporation Law as Applied 

dissolution, like the act of the association, is not a 
corporate act, but an act of the members of the corpo- 
ration. * * ^ The act of dissolution works a change 
in the form of the interest of its members by destroy- 
ing the stock represented — that is a legal interest in 
the property — and leaves the members to such a divi- 
sion of this. * * "^^ 
Lauman vs. The Lebanon Valley R. R. Co., 30 Penn. 

St. Rep., 42. 
Opinion by Lowrie, C. J. 

^'Where the legislature gives its consent to the con- 
solidation of existing corporations, the effect is to 
dissolve the former corporations and at the same in- 
stant to create a new corporation, with property, lia- 
bilities and stockholders derived from the old, upon 
such terms and conditions as may be prescribed by the 
act of consolidation." 
McMahon vs. Morrison, 16 Ind., 172 

See also, 
McCray vs. The Junction R. R. Co., 9 Ind., 358. 

The above case is reported in 79 American deci- 
sions, p. 418. The subjoined notes, p. 422, etc., affect- 
ing the above subject, are as follows : 

Definition of consolidation of corporations. 

'Tn State vs. Bailey, ante, page 405, and Lauman 
vs. Lebanon Valley R. R. Co., 30 Penn. St. 42 (and 
supra), the term "consolidation," as applied to corpo- 
rations in the law of this country, is ''a surrender of the 
old charters by companies, the acceptance thereof by 



to Private Business Corporations 403 

the legislature, and the formation of a new corpora- 
tion out of such portions of the old as entered into 
the new." That the legislature may incorporate a new 
and distinct corporation out of two or more previ- 
ously existing corporations, and that its powers and 
privileges may be designated by the reference to the 
charters of other companies as well as by special enu- 
meration, see principal case; Railroad Co. vs. Maine, 
96, U. S. 499; State vs. Maine Central R. R. Co., 66 
Me., 500. The effect of consolidation as stated in the 
principal case works a dissolution of the corporations 
previously existing, and at the same instant the crea- 
tion of a new corporation, with property, liabilities and 
stockholders derived from those then passing out of 
existence : 

''Miller and Miss. R. R. Co. vs. Lancaster, 5 Cold., 
514; and the principal case is cited to this point 
in Clearwater vs. Meredith, i Wallace, 40, etc. (68 
U. S.) ; Mowrey vs. Indianapolis, etc., R. R. Co., 4 
Biss. 85 ; State vs. Maine C. R. R. Co., 66 Maine, 500; 
Shields vs. Ohio, 95 U. S., 324; Railroad Co. vs. 
Georgia, 98 U. S., 363." 

The "Pennsylvania College Cases" (1871) were 
important litigations in the U. S. Supreme Court, and 
are reported in 13 Wallace (80 U. S.), 190. The 
opinion of the court by Mr. Justice Clifford contains 
the following: 

"Corporate franchises granted to private corpora- 
tions, if duly accepted by the corporators, partake of the 
nature of legal estates, as the grant under such cir- 



404 Corporation Law as Applied 

cumstances becomes a contract within the protection of 
that clause of the Constitution which ordains that no 
State shall pass any law impairing the obligation of 
contracts. Charters of private corporations are re- 
garded as executed contracts between the government 
and the corporators, and the rule is well settled that 
the legislature cannot repeal, impair or alter such a 
charter against the consent or without the default of 
the corporation judicially ascertained and declared. 
Of course these remarks apply only to acts of incorpo- 
ration which do not contain any reservations or provi- 
sions annexing conditions to the charter modifying 
and limiting the nature of the contract." 
Ibid, p. 212. 
The principle that the consolidation of corporations 
operates to extinguish the old and form a new com- 
pany is recognized in 
Keokuk and W. R. R. Co. vs. Missouri, 152 U. S., 

301, etc.; 
also in 
Shields vs. Ohio, 95 U. S., 319, etc. 

In Central R. R., etc., vs. Georgia, 92 U. S., 665, 
however, it was held that the question of whether the 
consolidation of corporations necessarily worked their 
dissolution and created a new corporation under legis- 
lative sanction depends upon the intent of the legisla- 
ture as manifested in the statute under which the con- 
solidation takes place. 

"The Maine Central R. R. Co. was, upon the consol- 
idation of the original companies, a new corporation, 



to Private Business Corporations 405 

as distinct from them as though it had been created 
before their existence. * * * 

''A new corporation may be as readily created by the 
union of two or more corporations as by the union 
of individuals; and its powers and privilege may as 
well be designated by reference to the charters of other 
companies as by special enumeration." 
Railroad Co. vs. Maine, etc., R. R. Co., 96 U. S., 

499- 
Opinion by Field, J. 

The recent case of Minnesota vs. Northern Securi- 
ties, 184 U. S., 199 et seq. (1903), does not especially 
hold in regard to the consolidation or other uniting of 
corporations, except so far as the same conflicts with 
the rules governing interstate commerce. 

«^ * ^ It was natural, therefore, when old cor- 
porations consolidated, that the law should treat the 
new corporation which it then called into being as it 
would have treated another croporation coming into 
being at the same time, but starting fresh instead of 
being a consolidation of the old." 
Shaw vs. The City of Covington, 194 U. S., 593 
(1904). 

The principle that the consolidation of corporations 
works a dissolution is very ably discussed in Yazoo 
and Mississippi Valley Ry. Co. vs. Adams, 180 U. S. 
I (1900) ; the opinion was by Mr. Justice Brown. 



406 Corporation Law as Applied ■ 

''An amalgamation implies such a consolidation as 
to reduce the companies to a common interest." 
Powell vs. No. Mo. R. R. Co., 42 Mo., 6y 

See also the able opinion of Chancellor Zabriskie in 
Black vs. Delaware and Raritan Canal Co., 22 N. J. 
Eq., pp. 231 to 430 inclusive. 

In England the term amalgamation is equivalent 
to consolidation; and, as defined, exists where com- 
panies agree to abandon their respective articles of 
association and regulations, and to register themselves 
under new articles as one body. 

Thus there is constituted a new company, formed 
by the coalition of the companies previously existing : 

See 
In re Bank of Hindustan, etc., supra, 

2 Hemming and Miller's Reports, 666 (Vol. III., 1864 
and 1865) : 

This definition of the new relation is supported by 
Clinch vs. Financial Corporation, Law Reports, Chan- 
cery Division, Vol. IV., p. 117; in re Empire Assur- 
ance Corporation, Law Reps., 4th Equity Cases, 341. 

So in Missouri, an amalgamation implies such a 
consolidation as reduces the companies to a common 
interest; Powell vs. North Mo. R. R. Co., 42 Mo., 63, 
supra. 

In this case it was also held that where several rail- 
road companies were by virtue of the act of union 
"merged in and constituted one body corporate," under 
the name of one of them, and all were continued in 



to Private Business Corporations 407 

existence, it was treated as a consolidation. But 
where, by the very terms of the statute and deed, the 
first corporation was extinguished and the second only 
continued to exist, the case is not one of mere consoli- 
dation or amalgamation. 

"The power of the legislature to confer authority 
upon existing companies to consolidate or amalgamate 
is unquestioned." 

Clearwater vs. Meredith, i Wall (68 U. S.), 39. 
Black vs. Delaware, etc., Canal Co., 22 N. J. Eq., 130, 

455. 
Clinch vs. Financial Corporation, L. R., 5 Eq., 450. 

In fact, without such authority corporations organ- 
ized separately could not merge and consolidate their 
interests. 

Clearwater vs. Meredith, supra. 

This authority may be conferred in the original 
charter or by the provisions of a general or special act 
of the legislature passed prior to consolidation, and 
after the organization of the original corporations. 
Bishop vs. Brainerd, 28 Conn., 289; 
Southall vs. British Mut. L. Ins. Soc. L. R. 11 Eq., 65; 
or even by the express sanction of an unauthorized 
agreement to consolidate. 
McAuley vs. Columbus, etc.. Cent. Ry. Co., 83 Ills., 

348; 
Mead vs. N. Y., etc., and N. R. R. Co., 45 Conn., 199. 

In the absence of authority clearly conferred, the 
amalgamation of companies is an act beyond the scope 



408 Corporation Law as Applied 

of the powers, not only of the directors, but of the 
company, any shareholder may restrain such act. 

See, 
Charlton vs. New Castle, etc., Ry. Co., 5 Jur. N. S., 
1906, — a leading case; decision by Vice-Chancel- 
lor Sir W. Page Wood. 
Blatchford vs. Ross, 5 Abb. Prac, N. S., 434 S. C, 54 
Barb., 42. 
''A single shareholder may, therefore, apply for and 
obtain an injunction restraining his company from 
carrying into effect an agreement with another com- 
pany to amalgamate their lines where the legislative 
sanction for such an act has not been obtained." 

(See further cases cited therein.) 
McMahon vs. Morrison (16 Indiana, 172), 79 Am. 
Decisions, 418 (notes). 

Assent of Stockholders. — The general rule is that 
the consent of every stockholder is necessary for con- 
solidation; and those who dissent cannot be compelled 
to assent. 

Citing, Ham. Mut. Ins. Co. vs. Hobart, 2 Gray, 543 ; 
Gardner vs. Ham. Ins. Co., 33 N. Y., 421; 
Mowery vs. Ind., etc., R. R., 4 Biss, 78; 
Blatchford vs. Ross, 5 Abb. Prac, N. S., 441 ; 
Same case, 54 Barb., 43 ; 
Chapman vs. Mo. R.. etc., 6 Ohio St., 119; 
In re Emp. Ins. Co., L. R., 4 Eq., 341 ; 
Block vs. Del., etc.. Canal Co., 24 N. J. Eq., 455. 

**In conferring authority to consolidate corpora- 



to Private Business Corporations 409 

tions, the legislature never intended to compel a dis- 
senting stockholder to transfer his interest because 
a majority of the stockholders consented to the con- 
solidation. 

"Such legislation would impair the obligation of 
contracts and therefore be invalid. Consequently, 
there is no power to force a stockholder of the old 
corporation to join the new corporation and to receive 
stock in it on the surrender of his stock in the old 
company." 

Clearwater vs. Meredith, supra. 
Gardner vs. Hamilton, supra. 

See the very apt language, enunciating the same 
equitable principle, contained in Menier vs. Hooper's 
Telegraph Works, decided by the House of Lords 
(1874), L. R., 9 Ch., 350 and cases therein cited. 

The foregoing extracts, together with much other 
useful and interesting information on the subject of 
the consolidation and amalgamation of corporations, 
are taken from the notes to the leading case of 
McMahon vs. Morrison, 16 Ind. Reps., 172, as found 
in Vol. LXXIX., of "American Decisions," p. 418, etc. 

In the leading case of Blatchford vs. Ross, 5 Abbs. 
Pr., N. S. (N. Y.), 434, supra, Mr. Justice Ingraham 
said: 

"They had no authority by such a consolidation to 
bring the stockholders under the increased liability for 
the debts of another company, and expose them to 
'loss' which might not have existed before, or which 



410 Corporation Law as Applied 

might follow from the introduction of a new company 
or association, and a surrender to such new company 
of all the property of the association. Thus, in the 
case of private corporations the unanimous voice of 
the stockholders was regarded necessary to change its 
provisions (Livingston vs. Lynch, 4 Johns., Chan. 
373) ; and even an act of the legislature was held in- 
sufficient to compel a change of business in a corpo- 
ration from what was originally contemplated, with- 
out the consent of the stockholder." 
Hartford and N. H. R. R. Co. vs. Creswell, 5 Hill, 
N. Y., 383. 

In the case of Clinch vs. Financial Corporation, L. 
R., 5 Eq., 450, it was held that an agreement for amal- 
gamation with another company was not within the 
power of the directors, although the articles authorized 
the directors to amalgamate with any company formed 
to carry on any business included in the objects of the 
company, in a case in which an assessment was made 
upon its stockholders for the purpose of carrying out 
the amalgamation. 

Upon this branch of the case the learned vice-chan- 
cellor thought it was clear that the proposed merger of 
one company in another, without the consent of the 
stockholders, was, as to those who did not agree, ut- 
terly beyond the powers of the executive committee 
and directors. 

In England, a controlling case is 
In re Empire Assur. Corp., ex parte Bagshaw, Law 
Reports, Equity cases. Vol. IV., p. 341 (1867). 



to private Business Corporations 411 

The ensuing passage is from the decision therein, 
by Sir W. Page Wood, V. C. : 

"* * ^ It is difficult to say what the word 'amal- 
gamate' means. I confess at this moment I have not 
the least conception of what the full legal effect of the 
word is. We do not find it in any law dictionary, or 
expounded by any competent authority. But I am 
quite sure of this, that the word 'amalgamate' can- 
not mean that the execution of a deed shall make a 
man a partner in a firm in which he was not a partner 
before, under conditions of which he is in no way cog- 
nizant and which are not the same as those contained 
in the former deed. It is true that in this instance, 
partners engaged in a concern for insurance of a par- 
ticular character, have authorized their directors to 
amalgamate with another company. It is possible that 
this authority may go thus far; it may empower the 
directors, without being called to account for so doing 
in this court or by any other jurisdiction, to sacrifice 
or give up (which implies something more) the whole 
business, and to transfer their assets, if they think fit, 
to some other company, allowing that company to 
carry on the business on the best terms they can make 
with them. In carrying out this, the directors may 
say : 'You who do not like this arrangement must sim- 
ply lose ; we have amalgamated one company with the 
other ' (which seems to be a process of annihilation 
or extinction rather than anything else) 'and we have 
placed all your assets in the hands of another concern.' 
But that does not imply that the dissentient sharehold- 



412 Corporation Law as Applied 

ers, besides losing all their assets, are personally bound 
to take their part and lot in a new concern." 

In another English case, Clinch vs. Financial Cor- 
porations, Law Reports, Chancery Appeals, Vol. IV., 
p. 117, Lord Chancellor Cairns said: 

"The arrangement between the Oriental Commercial 
Bank and Financial Corporation, which in the papers 
in this case, and in the argument before us, has been 
called an amalgamation or combination, was in sub- 
stance a transfer by the Corporation to the Bank of 
the business, good-will, connection and property of the 
former in consideration of 25,000 shares in the lat- 
ter H^ H^ H* 

"The plaintiff was, and continued throughout to be, 
the owner of his shares in the corporation, and of all 
rights incident to those shares, unless the rights were 
taken away, or effectively bound by the arrangement 
for amalgamation, and he was simply asserting and 
maintaining those rights. Those rights, in my opin- 
ion, have not been taken away. * * *" 

Lord Chief Justice Sir C. J. Selwyn and Lord Jus- 
tice Wood concurred in the Lord Chancellor's opinion. 

One of the most important cases in the New York 
courts touching the question of the consolidation of 
corporations is People vs. North River Sugar Ref. 
Co., 121 N. Y., 582 (1890). 

Mr. Justice Finch delivered the opinion; it is in 
part as follows : 

*Tt is true, as we are reminded, that the statute con- 



to Private Business Corporations 413 

fers upon the trustees and directors general authority 
to manage the stock, property and concerns of manu- 
facturing corporations ; and equally true that, as a gen- 
eral rule and as between the companies and those with 
whom they deal, the corporate action must be mani- 
fested through and by the directors ; but other statutes 
indicate with equal plainness that there are corporate 
acts which the trustees cannot perform, and which 
effect and bind the corporation only upon the condi- 
tion that they proceed from the stockholders, or from 
them and the trustees acting together. In increasing 
or diminishing the capital stock, the corporate act is 
wholly that of the corporators, and in consolidating 
two or more companies into one, there must be the 
joint action of both trustees and stockholders. * * *^" 
Mr. Brice says, "Many important cases relating to 
Ultra Vires have arisen on the amalgamation of cor- 
porations." In these cases the rights and liabilities of 
the parties concerned have, to a great extent, depended 
upon the principles of novation. These principles in 
substance are taken from Roman Law. 
Brice's Ultra Vires, Chap. III., sec. i, p. 514 (3d Ed., 
London). 

Essentials of amalgamation stated. — ''The idea 
commonly attached to the term 'amalgamation' in 
connection with corporations is very simple, viz. : the 
absorption of one corporation by another, the former 
being ipso facto destroyed, and its members relieved 
and deprived, both individually and collectively, from 
and of all existing liabilities and rights, save such as 



414 Corporation Law as Applied 

have been expressly reserved to them by the constating 
instruments and the instruments relating to the amal- 
gamation. The term, however, has not in law any 
definite significance. It is employed loosely to denote 
various operations, in themselves widely different, 
which more or less completely work a transfer of cor- 
porate affairs from one corporation to another and a 
merger of the former body in the latter. The ambigu- 
ity and loose meaning of the term was commented on 
at some length by Page- Wood, V. C, in re Empire 
Assn. Corporation ex parte Shaw." 

{Quod vide J supra). 

Ibid. 

"A perfect amalgamation, or what is intended to be 
accomplished by such an operation when thoroughly 
carried out in all its details and as regards all the par- 
ties concerned, involves the following processes : 

1. "A transfer of the corporate entity, with its 
franchises, capacities and powers to another corpora- 
tion. 

2. "A transfer of the corporate assets, rights and 
liabilities, present or contingent, to such other corpo- 
rations. 

3. "A transmutation of the members of the former 
corporation into members of the latter. 

4. "A novation of the right of the creditors of the 
former corporation, so that the rights and claims 



to Private Business Corporations 415 

against it are gone, and instead the latter corporation 
is their debtor." 

Ibid, p. 517. 
"Though it is only by or in pursuance* of statutory 
authority that the corporate entity of one corporation 
can be transferred to and vested in another, or that 
the members of one corporation can be transmitted 
into and made members of another, and therefore 
amalgamation, as meaning or including such results, 
in the absence of such authority, is impossible; never- 
theless, the substance of what is desired to be done in 
such cases can by proper arrangements and proceed- 
ings be accomplished indirectly; and it is these opera- 
tions, with these results, which are now usually meant 
by the term amalgamation." 

Ibid, p. 518. 

"* * * Sec. 6, Consolidation. This is an expres- 
sion used almost indiscriminately with amalgamation 
in the United States to denote certain operations rel- 
ative to the union of corporations." 
Ibid, p. 535. 

Citing, Lauman vs. Lebanon, etc., R. R. Co., supra, 
(30 Penn. St. Rep., 42). 

For a full knowledge of the subject as treated by 
Mr. Brice, see idem, pp. 512 to 536, inclusive. 

Further authorities in support of text. — In the ex- 
amination of this subject it should be again noted 
that questions of consolidation, amalgamation, etc., 
have generally arisen in litigations which concern 



416 Corporation Law as Applied 

railroads. The same basic principles apply in large 
measure to all forms of corporate existence, except 
in cases where the performance of some public duty 
is the prominent and controlling feature. 

Mr. Spelling has this to say on the subject: 

*'There is amalgamation or consolidation of one 
corporation with another when, by consent of its mem- 
bers, it effects a complete transfer of all its property 
interests and franchises and becomes completely 
merged in it, or in the creation of a new corporate 
entity by the consolidation of two or more corpora- 
tions, which thereby abandon their original organiza- 
tions and franchises, and transfer all their rights and 
interests to the new. It has sometimes been at- 
tempted to define and explain amalgamation and con- 
solidation as a result of distinct proceedings. The 
result of merger of one corporation into another, how- 
ever effected, is an amalgamation, and the same term 
may properly be applied to the result of two or more 
corporations, consolidating to form a new one. 
Though the result is generally designated in the 
United States as a consolidation, and in England as 
an amalgamation, the union of two or more corpo- 
rations may be likened to either the welding of two or 
more malleable substances so as to form a distinct 
third, or of one into another whereby the latter retains 
its name and form, notwithstanding it has received 
an accession to and change of its substance and nature 
by the merger of the substance welded into it. Vir- 



to Private Business Corporations 417 

tually and practically the terms 'amalgamation' and 
'consolidation' may be applied interchangeably." 
Spelling on Private Corporations, Vol. L, 112, etc., 
sec. 92. 

*'But it is also well settled that corporations already 
formed without the existence of such statutory pro- 
visions or express agreement at the time of their for- 
mation cannot be consolidated without unanimous 
consent of their members even though the legislature 
should authorize the consolidation to be made; for it 
would work a fundamental change in the contracts of 
membership, without the consent of every member 
given through the charter or otherwise. An attempt 
to effect a consolidation by a majority vote is wholly 
nugatory, and a single dissenting member may, by 
objecting, prevent the proposed change." 
Ibid, sec. 96. 

One person may own all the stock of a corporation 
and still such individual shareholder and the corpora- 
tion would in law be two separate and distinct persons. 
See, Waycross Air Line R. R. Co. vs. Offerman, 109 
Ga., 827. 

And there is no merger arising from the mere 
fact that the stock in two companies was owned by 
the same individual. 

Ibid, p. 828, opinion of Cobb, J. 

See also in support of above. 

Exchange Bank vs. Macon Const. Co., 97 Ga., i. 

In the absence of express legislative authority a 



418 Corporation Law as Applied 

corporation has no power to amalgamate or consoli- 
date with another corporation. 

Home Friendly Society vs. Tyles, 9 Pa. C. C, 617 
(1891) ; Schuyler, P. J. See 

Baltimore and S. R. Co. vs. Musselman, 2 Grant's 

Cases (Pa.), 347. 
also. 
Root vs. Ore Creek and H. R. R. Co., 2d Foster, 145 

and 
Hamilton vs. Clarion, etc., R. Co., 144 Penna., 34. 

While corporations cannot consolidate without au- 
thority of law, a banking corporation may transfer its 
depositors' accounts to another bank, and may borrow 
money from such other banks to pay its deposits, and 
may pledge its assets as security, etc. Such action on 
the part of a bank is neither consolidation nor merger. 

Overstreet vs. Citizen's Bank (Supreme Court, Okla- 
homa, 1903),' 72 Pacific Reporter, 379. Opinion 
by Burford, C. J. 

A member of a corporation non-assenting to a cor- 
poration merger with other corporations is not bound 
thereby, and is at liberty to seek his redress against 
the corporation of which he was originally a member. 
In this instance the combination of three corporations 
was sought by legislative enactment. The case clearly 
expounds the rule that no stockholder can be legislated 
out of his contractual rights. 
Gardner vs. Hamilton Mutual Ins. Co., 33d N. Y., 421. 



to Private Business Corporations 419 

The rights of the non-assenting stockholder are 
mentioned and supported in 
Jacobs vs. Diamond Soda W. M. C. Co., 94 App. Div., 

366,- 
an unanimous decision. 

This case cites and approves 

People vs. Ballard, 134 N. Y., 269. 
An important English case, containing the central 
idea above expressed, is 

Menier vs. Hooper's Telegraph Works,- House of 
Lords (1874), L. R., 9 Ch., 350, supra. 
An important and much-cited case regarding this 
subject generally is 
Boardman, etc., vs. Lake Shore and Mich. Southern 

Ry. Co., 84N. Y., 159; 
also, incidentally, the following case, — 
Doncomb et al. vs. N. Y. H. & N. R. R. Co., 84 N. Y., 
190. 
Each of the above cases embraces much of value. 
For the second appeal in the last-mentioned case see 
88 N. Y., I. 

Again, the disfavor which the courts have shown in 
the matter of amalgamation, or combination of corpo- 
rations against the will and protest of a single stock- 
holder, is found in 

Blatchford vs. Ross, 54 Barb. (N. Y. Sup. Ct), 43, 
supra. 

The opinion by Mr. Justice Ingraham does not ap- 
pear to have been disturbed by later decisions; on the 



420 Corporation Law as Applied 

contrary, the principles therein enunciated are re- 
peated and affirmed. 

In conclusion, it may be said that many of the defi- 
nitions display a waste of acumen and disclose "a dis- 
tinction without a difference." The substance to be 
gathered from the foregoing chapter is that amalga- 
mation, combination, consolidation and merger are 
terms which have been, and under the authorities may 
continue to be, used indiscriminately to designate the 
uniting of corporate bodies together into one compre- 
hensive entity. 



to Private Business Corporations 421 



CHAPTER XXIII. 

Holding Companies. 

Object sought to be accomplished by these companies. 
— Old and new methods contrasted. — How Hold- 
ing Company is formed. — Such method not equiv- 
alent to individual holding. — Main asset consists of 
voting power in companies controlled. — Exclusive 
control invades property rights. — Principle in- 
volved within rule of Dartmouth College Case. — 
Authorities on right to permanently absorb voting 
power. — Rule as to fiduciary relation repeated. — 
It is ultra vires to surrender corporate functions. — 
Such surrender is also against public policy. — It 
amounts only to revocable proxy. — Trusts not 
treated of herein. — Stockholders entitled to benefit 
of individual judgment. — Reasonable latitude al- 
lowed. — Some reflections on the general theme of 
this chapter. 

Object sought to be accomplished by these compa- 
nies. — There is a natural desire on the part of the 
manipulators of stock corporations to get hold of the 
public's money and to use it to further their schemes, 



422 Corporation Law as Applied 

at the same time avoiding the often resented and ever 
distasteful liability to be called to account, or to sub- 
ject their doings to scrutiny; and it need hardly be said 
that the consummation of this purpose has called forth 
superior powers of invention and skilfulness in arti- 
fice of an equal degree. One result has been the quasi- 
commercial institution known as a Holding Company, 
— a form of corporative existence of comparatively 
recent origin. 

Old and new methods contrasted. — The system 
followed in former times was the less artistic "inner 
circle" or "ring" within the board of directors, — a 
species of corporate conspiracy formed with the design 
of selling out the property and franchise in toto to a 
new corporation, entirely owned by themselves and 
their friends. This "old style" system labored under 
the disadvantage of requiring the acquisition of the 
entire assets, and to -that extent was cumbrous and 
unwieldy; whereas the "modern method" displays a 
distinct advance in human ingenuity and fertility of 
resource. As will be shown later, this new device per- 
mits the employment of a large percentage of the 
capital of others to promote individual ends. 

How holding company is formed. — The Holding 
Company is formed by the creation of a distinct and 
ostensibly independent corporation, to which is trans- 
ferred more than fifty per cent, of the capital stock of 
the group corporations that it is sought to control. 
Under regular and recognized corporate lines of man- 
agement, the majority elects the directors and through 



to Private Business Corporations 423 

them the officers of each, and thus the management of 
all is secured. While the majority of the stock is 
retained in the treasury of the Holding Company every 
dissenting stockholder of the companies thus domi- 
nated is debarred from sharing in the management or 
the emoluments of office; he is, in effect, relegated to 
the position of an observer, even in matters which 
deeply concern his interests as a stockholder. 

Such method not equivalent to individual hold- 
ing. — It may be said that the majority is liable to be 
sold and therefore the minority holder is no more 
injured than would be the case if these shares were 
held by one or more individuals. But in prac- 
tice, the case is far different. The exigencies of death 
and the uncertainties of business do disperse private 
fortunes and bring again into the public markets se- 
curities that carry with them the management of busi- 
ness corporations; but when the control has once 
vested and become an asset in the treasury of a Hold- 
ing Company it is usually a permanent investment. In 
substance and effect, the scheme when consummated 
amounts to the perpetual disenf ranchisement of all 
shareholders excepting only those who are in favor with 
the Holding Company. It is to this element of perma- 
nency that attention is invoked, for in it is contained 
the germ from which springs the injustice and the op- 
pression. In brief, the device is a clever perversion of 
legitimate measures to accomplish, by indirection, an 
illegal act ; as without the consent of every shareholder 
the business which the shares of capital stock represent 



424 Corporation Law as Applied 

could not be transferred in toto to the Holding Com- 
pany. 

Cook on Corporations (8th Ed., Chicago, 1903), sec. 
669. 

Main asset consists of voting power in companies 
controlled. — This separation of the usufruct, or bene- 
ficial interest from the thing itself, is the real capital 
of such Holding Company, which very seldom en- 
gages in active production on its own account, but in 
place thereof utilizes the franchises of the companies 
thus controlled. 

While the purposes for which Holding Companies 
are formed are not in all instances improper, or unjust 
to the stockholders of the companies thus absorbed, yet 
it is certain beyond the domain of doubt that they do 
furnish opportunities to thwart minority stockholders 
and debar them from the vested interests they possess 
under the doctrine of the Dartmouth College case, 
and from many of the rights and privileges which are 
theirs and would be enjoyed by them were it not for 
such Holding Companies. As has been seen (Chap- 
ter XVn., "The Fiduciary Relation"), the relationship 
between the stockholder and his corporation is a con- 
tractual one, and upon becoming a member of a private 
business corporation the stockholder becomes vested 
with certain rights and privileges which cannot right- 
fully be taken from him without his consent, except 
by due process of law, and this the Constitution vouch- 
safes to him; for so sacred has this principle become 



to Private Business Corporations 42h 

that it has been declared with authority that a vested 
right is superior to legislative enactment. 

Exclusive control invades property rights. — Among 
the various rights which pertain to the relation of 
stockholder is the right to attend the corporate meet- 
ings and vote for directors and other officers, the 
right to hold office, etc. These rights the courts have 
declared and adjudged to be "property." 

See Chapter XXIV., "Constitutional Questions." 
Also Dartmouth College Case, 4 Wheat., 250; old 
paging 517; Shepaug Voting Trust, and Warren vs. 
Pimm, both post. 

These facts given and true, it must follow that the 
Holding Company, when it practically deprives a 
stockholder, against his will, of that "property," does, 
in effect, violate the Constitution of the United States 
and, for that matter, violates the constitution of each 
of the various States as well. As these Holding Com- 
panies are an invention of recent origin, and they have 
not been, as yet, the subject of extended litigation, the 
number of reported cases is small; furthermore, for 
the same reason, the topic is one which does not appear 
in the pages of the works of the principal text-writers. 

Principle involved within rule of Dartmouth College 
case. — The principle involved, however, is clearly 
within the rule laid down in the famous Dartmouth 
College case. Therein the court, with great skill, laid 
bare the structural contract around which the corpo- 
ration is built and by which it is maintained. 



426 Corporation Law as Applied 

It enunciated the fact, which remains undisturbed, 
that without a special reservation of power, not even 
the sovereign State which created or continues its 
being can disturb the vested rights which have ac- 
crued under that compact. And yet, notwithstanding 
the high authority which that decision derived from 
the fulness of learning therein embodied, and from the 
conclusiveness of the careful consideration which the 
subject then received, and which the lapse of time has 
rendered more binding upon the mind, the conscience 
and the conduct of the well-intending, — audacious 
manipulators have dared to lay impious hands upon 
this Ark of our liberties. 

Lawmakers have sought, through the instrumental- 
ity of excessively liberal statutes, to enrich State treas- 
uries, and with that end in view have authorized Hold- 
ing Companies to do those things which are prohibited 
to the sovereign people. 

To prove our contention that the Holding Company 
is a modern device intended to "impair the obligation 
of contracts," and to nullify the rule as to "due process 
of law," it will be necessary for the reader to bear in 
mind how such companies, in effect, undermine and 
destroy the "vested rights" which the court was at 
such pains to define and declare. 

No more authoritative statement of these basic 
truths is anywhere found than is contained in the apt 
and forceful language of the Dartmouth College case, 
(4th Wheaton), 517, as will appear in the following 
extracts : 



to Private Business Corporations 427 

"This is plainly a contract to which the donors, the 
trustees, and the Crown (to whose rights and obliga- 
tions New Hampshire succeeds) were the original 
parties. It is a contract made on a valuable considera- 
tion of property. It is a contract on the faith of which 
real and personal estate have been conveyed to the 
corporation. It is then a contract within the letter of 
the Constitution, and within its spirits also, unless the 
fact that the property is vested by the doners in trus- 
tees for the promotion of religion and education, for 
the benefit of persons who are constantly changing, 
though the objects remain the same, shall create a 
particular exception, taking this case out of the prohi- 
bition contained in the Constitution.'' 

Ibid, p. 413. 
"Or does public policy so imperiously demand their 
remaining exposed to legislative alteration, as to com- 
pel us, or rather permit us to say, that these words, 
which were introduced to give stability to contracts, 
and which in their plain import comprehend this con- 
tract must yet be so construed as to exclude it." 

Ibid, p. 414. 

"The word 'Contract' in its broadest sense would 
comprehend the political relations between the gov- 
ernment and its citizens, etc. * * * Taken in its 
broadest unlimited sense, the clause would be an un- 
profitable and vexatious interference with the internal 
concerns of a State, would unnecessarily and unwisely 
embarrass its legislation and render immutable those 
civil institutions which are established for purposes 



428 Corporation Law as Applied 

of internal government, and which to subserve these 
purposes ought to vary with varying circumstances. 
That as the framers of the Constitution could never 
have intended to insert in that instrument a provision 
so unnecessary, so mischievous and so repugnant to 
its general spirit, the term 'Contract' must be under- 
stood in a more limited sense. That it must be under- 
stood as intended to guard against a power of at least 
doubtful utility, the abuse of which had been exten- 
sively felt, and to restrain the legislature in future 
from violating the right to. property. That anterior 
to the Constitution a course of legislation had pre- 
vailed in many, if not all, of the States, which weak- 
ened the confidence of man in man, and embarrassed 
all transactions between individuals by dispensing with 
a faithful performance of engagements ; to correct this 
mischief, by restraining the power which produced 
it, the State legislatures were forbidden 'to pass any 
law impairing the obligations of contracts/ that is, 
of contracts respecting property, under which some 
individual could claim a right to something beneficial 
to himself. 

Ibid. 

"It is reorganized and reorganized in such a man- 
ner as to convert a literary institution molded ac- 
cording to the will of the founders, and placed under 
the control of private literary men into a machine 
entirely subservient to the will of the government. 
This may be for the advantage of this college in par- 
ticular, and may be for the advantage of literature in 



td^ Private Business Corporations 429 

general, but it is not according to the will of the 
donors and is subversive of that contract, on the faith, 
of which their property was given." 
Ibid, p. 419. 
"If then a grant be a contract, within the meaning 
of the Constitution of the United States, the next in- 
quiry is, whether the creation of a corporation by 
charter be such a grant, as includes an obligation of 
the nature of a contract, which no State legislature 
can pass laws to impair." 

Ibid, pp. 421-422 (old paging 654-5, etc.), 
quoting 

Blackstone, 2d Comm., 37 and 484. 
"It appears to me, upon the whole, that these au- 
thorities prove incontrovertibly that a charter of in- 
corporation is a contract." 

Ibid, p. 423. 

Authorities on right to permanently absorb voting 
power. — "Changes in the purpose and object of an 
association, or in the extent of its constituency and 
membership, * * * are necessarily fundamental in 
their character, and cannot, on general principles, be 
made without the express or implied consent of the 
members." 
Susquehanna Broom Co. vs. Dubois, 58 Penn., 185. 

See Chapter XII., "Change of Capital Stock," 
supra. 

Such further cases as bear upon the matter in hand 
will be found in the succeeding pages. 



430 ' • Corporation Law as Applied 

Whether or not stockholders may surrender their 
voting power and irrevocably vest it in others, perma- 
nently or for a stated time, depends upon the circum- 
stances of the particular situation. 
Clark and Marshall on Private Corporations, Vol. 
III., p. 2019. 

An important case on this subject is 
Havemeyer vs. Havemeyer, 43 N. Y. Superior Court, 

506; affirmed in 
86 Court of Appeals, 618. 

In 

Shelmerdine vs. Welsh, 20 Phila., 199, 
opinion by Hare, J., it v^as held: 

''In general, the right to vote on stock cannot be sep- 
arated from the ov^nership in such a sense that the 
election franchise shall be in one man and the entire 
beneficial interest in another. The person v^ho votes 
must consequently be an owner, but it does not conse- 
quently follow he must be the only one." 

In Clark and Marshall, supra, the rule is laid down 
and well sustained that the promise to give proxies 
based on no other consideration than mutual promise 
is void because contrary to public policy. 

Ibid, Vol. III., p. 2020; 
Citing, The Shepaug Voting Trust case, post. 
Bostwick vs. Chapman, 60 Conn., 553. 
Starbuck vs. Mercantile Trust Co., 2 Smith's Cases, 
1032. 

The Shepaug Voting Trust Case was one affecting 



to Private Business Corporations 431 

a quasi-puhlic corporation. Nevertheless, it sustains 
the doctrine that pubHc poHcy forbids the separation 
of the voting power from the true ownership in mat- 
ters corporate: 

*'It is found that these contracts are oppressive and 
injurious to the Shepaug Company and its sharehold- 
ers, and were entered into by the directors and officers 
of the Shepaug Company with full knowledge that 
they were of that character, and would embarrass the 
company, its shareholders and the trust certificate 
holders, and injuriously affect their rights and inter- 
ests in the railroad property. It is further found that 
if this Ripley contract were carried out it would seri- 
ously impair the financial condition of the Shepaug 
Company and leave its stock of little value, and there 
are other facts, which I will not here repeat, that 
should have a controlling influence. 

''The Court cannot give its countenance to contracts 
that are in fact oppressive and injurious to the com- 
pany and its shareholders — contracts to obtain personal 
profit and gain to directors and officers, or in which 
there is a fraudulent appropriation of the funds of 
the company to its president, or contracts that are in- 
spired by such an agreement as the facts show this 
trust and syndicate agreement to have been. It is 
claimed by defendants that the Court should not en- 
tertain the plaintiff's application because it is an appli- 
cation by the stockholders to the court to interfere 
with reference to the domestic or internal affairs of 
the corporation, which they say cannot be done except 



432 ■ Corporation Law as Applied 

under very peculiar circumstances and to a very lim- 
ited extent. 

"I feel justified in saying with reference to this 
claim, that the facts disclose sufficiently peculiar cir- 
cumstances to warrant the court in entertaining the 
application of the plaintiffs. In the case to which I 
am referred by the defendants for the doctrine of the 
claim, 

Hawes vs. Oakland, 104 U. S., 453, 
the Court says : The exercise of this power (the power 
of the Court of Equity) in protecting the stockholders 
against the fraud of the governing body of directors 
or trustees, and in preventing their exercise in the 
name of the corporation of powers which are outside 
of their charter or articles of association, has been fre- 
quent, and is most beneficial, and is undisputed.* 

"And the court adds that perhaps the best assertion 
of the rule under discussion is found in the case of 

MacDougall vs. Gardner, i Ch. Div., 13, 
in which substantially the following language is held : 
'Nothing connected with internal disputes between 
shareholders is to be made the subject of a bill by some 
shareholder on the part of himself and others, unless 
there be something w/^ra vires on the part of the com- 
pany, qua company, or on the part of a majority of 
the company, so that they are not fit persons to deter- 
mine it. 

"And the Supreme Court of the United States fur- 
ther suggests in the same case of Hawes vs. Oakland, 
that the courts of this country, outside of the Federal 



to Private Business Corporations 433 

Courts, have in numerous instances admitted the right 
of a stockholder to sue in cases where the corporation 
is the proper party to bring suit, but they Hmit this 
right to cases where the directors are guilty of fraud 
or a breach of trust, or are proceeding ultra vires. 
And on page 460 of the same case, the Court says: 
''We understand the doctrine to be that to enable a 
stockholder in a corporation to sustain in a court of 
equity, in his own name, a suit founded on a right 
of action existing in the corporation itself, and in 
which the corporation is the appropriate plaintiff, 
there must exist, as a foundation of the suit, some 
action, or threatened action, of the managing board of 
directors or trustees of the corporation, which is be- 
yond the authority conferred on them by their char- 
ter or other source of organization, or such a fraud- 
ulent transaction completed or contemplated by the 
acting managers in connection with some other party 
or among themselves or with other stockholders as 
will result in a serious injury to the corporation or 
to the interest of the other stockholders, or where 
the board of directors or a majority of them are act- 
ing for their own interests in a manner destructive of 
the corporation itself or of the rights of the other 
shareholders, and which can only be restrained by the 
aid of a court of equity. In my opinion the facts in 
the case we are considering bring it clearly within the 
rule thus laid down by the United States Court. 

Ibid, pp. 577-580- 
"In Griffith vs. Jewett, 15 Weekly Law Bulletin 
(Ohio), 419, 



434 Corporation Law as Applied 

it was held : 'If such demand be not compHed with, the 
party holding the entire beneficial interest in the stock 
cannot cast the vote thereof, while it may be voted 
upon by one having no interest in it or in the company ; 
and so it may come to pass that the ownership of a 
majority of the stock of a company may be vested in 
one set of persons, and the control of the company 
irrevocably vested in others. It seems that such state 
of affairs would be intolerable, and is not contem- 
plated by the law, the universal policy of which is 
that the control of stock companies shall be and re- 
main with the owners of the stock. The right to 
vote is an incident of the ownership of stock, and can- 
not exist apart from it (see cases cited). The owners 
of these trust certificates are, in our opinion, the equi- 
table owners of the shares of stock which they repre- 
sent, and being such, the incidental right to vote upon 
the stock necessarily pertains to them. 

" 'They may permit the trustees, as holders of the 
legal title, to vote in their stead if they choose; but 
when they elect to exercise the power themselves, the 
law will not permit the trustees to refuse it to them/ 

''The propriety and soundness of the doctrine of 
this case, and the necessity of its application, can have 
no better or forcible illustration than in the facts and 
situation of the matter before us. 

"The plaintiffs own 10,300 shares of the stock of 
this Shepaug road, or its equivalent, and, if the con- 
tention of the defendants be sound, are shut out for 
several years from any voice in the election of ofH- 



to Private Business Corporations 435 

cers and in the policy and management of the corpo- 
ration. 

"If I follow the doctrine in the case, as I feel com- 
pelled to, the conclusion must be that these plaintiffs, 
in the absence of any other well-grounded objection, 
have the right to revoke the voting power in the 
agreement. 

"But it is said that the case of Griffith vs. Jewett 
differs from this, in that the power in the former case 
was irrevocable, while in this it is to last for a term 
of years only, and, being such, is not against the policy 
of the law. 

"It seems to the court that the surrender by a 
stockholder of his power and right to vote on his stock 
for the term of five years is contrary to the policy of 
the law of this state. Were this a power of attorney 
in formal terms, no claim would be made but that it 
was not only contrary to the policy of the law of this 
state, but in direct conflict with our statute, which 
says that 'no person shall vote at any meeting of the 
stockholders of any bank or railroad company, by 
virtue of any power of attorney not executed within 
one year next preceding such meeting, and no such 
power shall be used at more than one annual meeting 
of such corporation.' Gen. Stat., par. 1927. This 
statute tends to disclose what the policy of the law 
of this state is touching the matter of the surrender 
by a stockholder of his voting power to someone 
else. It would seem that it is opposed to such surren- 
der for an indefinite period or for a period of five 



436 Corporation Law as Applied 

years. Evidently it was thought a longer surrender 
of the voting power would result disastrously in many 
ways. 

''It cannot be denied that as much disaster might 
follow to the business and the finances of a corpora- 
tion and the interest of stockholders, where the vot- 
ing power is yielded up in a five year voting trust, as 
by a five years' power of attorney. 

"The difference between an irrevocable power and 
a power irrevocable for five years, is a difference in 
degree and not in principle. A five year voting power, 
irrevocable for that time, would furnish time enough 
and opportunity enough to realize all the evils which 
our one year statute is manifestly intended to grant 
against. 

"It is the policy of our law that an untrammeled 
power to vote shall be incident to the ownership of 
the stock, and a contract by which the real owner's 
power is hampered by a provision therein that he shall 
vote just as somebody else dictates, is objectionable. 
I think it against the policy of our law for a stock- 
holder to contract that his stock shall be voted just 
as someone who has no beneficial interest or title in 
or to the stock directs; saving to himself simply the 
title, the right to dividends and perhaps the right 
to cast the vote directed, willingly or unwillingly, 
whether it be for his interest, for the interest of other 
stockholders, or for the interest of the corporation, 
or otherwise. 

"This I conceive to be against the policy of the law. 



to Private Business Corporations 437 

whether the power so to vote be for five years or for 
all times. 

"It is the policy of our law that ownership of stock 
shall control the property and the management of the 
corporation and this cannot be accomplished, and this 
good policy is defeated, if stockholders are permitted 
to surrender all their discretion and will in the impor- 
tant matter of voting, and suffer themselves to be mere 
passive instruments in the hands of some agent who 
has no interest in the stock, equitable or legal, and no 
interest in the general prosperity of the corporation. 

"And this is not entirely for the protection of the 
stockholder himself, but to compel a compliance with 
the duty which each stockholder owes his fellow- 
stockholder, to so use such power and means as the 
law and his ownership of stock gives him, that the gen- 
eral interest of stockholders shall be protected, and the 
general welfare of the corporation sustained, and its 
business conducted by its agents, managers and offi- 
cers, so far as may be, upon prudent and honest busi- 
ness principles, and with just as little temptation to 
and opportunity for fraud, and the seeking of individ- 
ual gains at the sacrifice of the general welfare, as is 
possible. This I take it is the duty that one stockholder 
in a corporation owes to his fellow-stockholders; and 
he cannot be allowed to disburden himself of it in this 
way. He may shirk it perhaps by refusing to attend 
stockholders' meetings, or by declining to vote when 
called upon, but the law will not allow him to strip 
himself of the power to perform his duty. To this 



438 Corporation Law as Applied 

extent, at least, a stockholder stands in a fiduciary 
relation to his fellow-stockholders. For these reasons 
I hold that this trust agreement is void as against the 
policy of the law of this State. 

"The trust company is one of the parties to the trust 
agreement, and it holds the legal title to the stock, and 
as such holder of the legal title it has in this trust 
agreement surrendered all a voter's power except the 
mere manual act of casting the selected ballot. It 
has in this trust agreement in effect surrendered to 
this committee the power to select the ballot. It has 
conceded to this committee the power to demand that 
it shall vote as they direct. What remains then in this 
trustee of the voting power, beyond being the mere 
hand, the use of which this committee is given the 
right to demand for this purpose at any stockholders' 
meeting. 

''It is not the full voting power to all intents and 
purposes in this committee, and it is not so by delega- 
tion. It seems to me that the voting power in this 
trust agreement falls within the spirit and intent of 
the prohibition of our statute heretofore referred to, 
and is terminable by lapses of the time and the use of 
it already at one annual meeting. 

"It is insisted that there is nothing illegal per se in 
the pooling of stock to carry out a scheme of extension 
authorized by law and favored by the corporation. 
This may be true under proper limitations, and when 
this is all there is to the scheme ; but when underlying 



to Private ^Business Corporations 439 

that pooling contract there is between the members of 
the syndicate, who are directors or a majority of the 
directors of a corporation, a secret agreement which 
enters into this poohng contract, and forms the object 
of its creation, and by which they are to take to them- 
selves the profit arising from such extension, or from 
the contracts which they as directors make, elements 
of unfairness and opportunity for fraudulent and dis- 
honest practices are introduced, which the court cannot 
too severely condemn. Such a pooling contract or 
voting trust is in violation of the most elementary 
principles of law governing the dealings of trustees 
with trust property and their cestuis que trust.'' 

The foregoing opinion has been quoted here in ex- 
tenso because of its earnestness, fairness and lucidity. 

It states the law as it existed at the time. Since that 
day the voting trust for a limited period has been legal- 
ized in some, at least, of the States. 

That statutory privilege is at best an extension of 
power which is of doubtful expediency, since it opens 
the door to the admission of ulterior motives in corpo- 
rate management. 

It should not be overlooked that in dealing with the 
precise question before him, the able author of this de- 
decision detected the presence of fraud, — an element 
which may or may not exist in other cases of the same 
general character. 

Rule as to fiduciary relation repeated. — In the case 

of 

Barnes vs. Brown, 80 N. Y., 535, 



440 Corporation Law as Applied 

the court, in commenting upon the subject of the di- 
rector's relations to his corporation, said : 

'It is true that the plaintiff, while acting as a di- 
rector of the corporation, held a fiduciary relation to it. 
He was a trustee of the corporation and was under the 
same disability which attaches to all trustees in dealing 
with trust property and in transacting the business 
pertaining to the trust. 

"He could not act as trustee and for himself at the 
same time, and he would not be permitted to make a 
profit to himself in his dealings with the corporation. 
It is against public policy to allow persons occupying 
fiduciary relations to be placed in such positions as that 
there will be constant danger of a betrayal of trust by 
the vigorous operation of selfish motives." 

This decision is utilized at this place to show author- 
itatively the true standard of trusteeship which should 
prevail in corporate as in other affairs. The subject 
of the fiduciary relation has been dwelt upon in nu- 
merous places in this work, and will not be again dis- 
cussed here. The foregoing quotation is also useful 
to indicate the rule which the Holding Company is 
usually intended to circumvent. 

It is ultra vires to surrender corporate functions. — 

The courts will not permit a corporation "to accept 
from the State the gift of corporate life only to disre- 
gard the conditions upon which it was given; to re- 
ceive its powers and privileges merely to put them in 
pawn, and to give away to an irresponsible board its 
entire independence and self-control.'* 



to Private Business Corporations' 441 

People vs. North River Sugar Ref'g Co., 121 N. Y., 
582. 
In an interesting case it has been held that corpo- 
rations cannot combine by turning over their property 
to a committee nominated by said corporations; that 
such action is ultra vires, even when ratified by the 
directors and shareholders. See, — 

Mallony vs. Hanaur Oil Works, 86 Tenn., 598. 

The last-named cases concerned purely private busi- 
ness corporations. These cases are particularly useful 
here because they show that the idea of outside con- 
trol, which is the basic principle of Holding Com- 
panies, has been passed upon adversely by the tribunals 
of those States. The rule applies, of course, with 
more reason and more strictness to quasi-puhlic cor- 
porations, or those owing particular duties to the 
public. 

Such surrender is also against public policy. — As 
stated by Justice Miller in 

Thomas vs. West Jersey R. Co., loi U. S., 71 : 

'The principle is that where a corporation, like a 
railroad company, has granted to it by charter a fran- 
chise intended in large measure to be exercised for 
the public good, the due performance of those func- 
tions being the consideration of the public grant, any 
contract which disables the corporation from perform- 
ing those functions which it undertakes, without the 
consent of the State to transfer to others the rights 
and powers conferred by the charter, and to relieve the 



442 Corporation Law as Applied 

grantees of the burden which it imposes, is a viola- 
tion of the contract with the State, and is void as 
against pubHc policy," 

Where Mr. Justice Miller says such a contract is 
void as against public policy, he evidently means it is 
void because it is in conflict with a definite rule of law, 
viz., that all corporations are accountable to the State 
for non-user or misuser of the franchise granted. To 
say that quasi-^nhWo. corporations are so accountable 
is to state only a portion of this well-recognized prin- 
ciple, which constitutes one of the conditions on which 
the very existence of corporate existence is based. 

From these principles, therefore, it would appear to 
follow that all contracts of a corporation, either private 
or qiiasi-^nhXic, to enter into combinations, whether of 
partnership, pool, restraint of trade, trust, lease, con- 
solidation, sale or otherwise, the necessary effect of 
which is to destroy its autonomy in the performance of 
its duty to the State, are, or ought to be, held to be 
void and unenforcible ; and this is so, although there 
are holdings to the contrary (erroneously, as we think), 
in the cases of leases and sales by purely private cor- 
porations. 

While a contract by a corporation violating this 
principle alone is not criminal or wrongful, it is ultra 
vires in the true sense, and the State undoubtedly has 
a technical right to complain. The State, however, 
does not, and will not, complain of such a transaction 
unless the contract made, or things done under it, in- 
juriously affect or threaten public interests; then the 



to Private Business Corporations 443 

State may interfere by quo warranto to prevent or 
enjoin its consummation, either by ousting the corpo- 
ration of the power usurped or annulHng the charter. 
As Judge Finch, in setting forth the rule as to those 
cases where the State will interfere of its own initia- 
tive, says in 

People vs. North River Sugar Ref'g Co., 121 N. Y., 
582 (608) : 

"* * ^ The State, as prosecutor, must show on 
the part of the corporation accused some sin against 
the law of its being which has produced, or intends to 
produce, injury to the public. The transgression must 
not be merely formal or incidental, but material and 
serious, and such as to harm or menace the public 
welfare." 

See, 
State vs. Standard Oil Co., 49 Ohio St., 137; 
State vs. Portland Natural Gas and Oil Co., 153 Ind., 
483, s. c. 53 N. E. Rep., 1089." 

It amounts only to revocable proxy. — A voluntary 
agreement among stockholders of a railway company 
vesting in trustees perpetually the right to vote the 
stock of all meetings of the corporation is absolutely 
void, as contrary to public policy, and in violation of 
act, etc. * 'Si * Even if such an agency were valid, 
it would amount to nothing more than a proxy to 
trustees, revocable at will. 
Vanderbilt vs. Bennett, 6 Penn., County Court Rep., 

193; 
opinion by Stowe, P. J. (1849), (syllabus). 



444 Corporation Law as Applied 

The question of voting trusts and proxies has been 
thus extensively treated in the citation of authorities, 
for the reason that the Holding Company in effect 
is the owner of the permanent voting power of the 
majority stock-interest of each of its servient corpo- 
rations, and the practical results are the same as if 
each holder of such controlling shares had executed 
and delivered such an instrument. As has been shown, 
a permanent divorce of the ownership from the voting- 
power would be set aside as illegal by the courts, if 
the holder were an individual; and it is contrary to 
the dignity of government and the spirit of the age 
that the fiction of a separate corporate entity should 
be permitted to circumvent a principle which the high- 
est tribunals have declared to be salutary and wise. 

In brief and at the risk of seeming to reiterate what 
has been treated of above, it may be said that since the 
placing of permanent control in the hands of trustees 
is contrary to law within the principle laid down in 
cases already cited in this connection and in Distilling, 
etc., Co. vs. The People, 156 111., 448, it would seem 
in reason to be equally prohibited to fix the corporate 
control in the treasury of a Holding Company. 

Trusts not treated of herein. — It has been stated in 
the previous chapter that this work does not treat of 
the subject of ''Trusts;" there is, however, a phase of 
the case closely connected with the subject, and to a 
certain extent collateral thereto, which should not be 
permitted to pass without some attention and remark. 

Recently, certain important causes have been before 



to Private Business Corporations 445 

the courts, — notably, the Northern Securities lease, — 
in which the powers, rights and duties of Holding 
Companies have been referred to, though direct and 
positive rulings in few instances have appeared in 
the decisions. 

It has been a mooted question whether the law ever 
will prohibit an individual from disposing of his prop- 
erty, and whether a stockholder may waive or surren- 
der all corporate rights while retaining ownership of 
such shares. 

It is now clear that public policy requires that stock- 
holders, as well as other individuals, shall be inter- 
dicted from doing acts the tendency of which would 
be hurtful to the community at large. Among these 
limitations upon individual action may be named the 
prohibitions which the law places upon stockholders 
in regard to surrendering those rights and privileges 
which it deems inalienable. 

Stockholders entitled to benefit of individual judg- 
ment. — In an important case regarding voting trusts, 
Warren vs. Pim (Chancery, N. J., 1903), 

reported in 55 Atlantic Reporter, 66, after an extended 
citation and discussion of authorities, Mr. Vice-Chan- 
cellor Pitney says, — ""^ ^ "^ the creation of the pool 
with its iron-clad provision and without the knowledge 
or consent of complainants, gave the defendants as 
holders of the foreign stock an unfair and unjust ad- 
vantage, in that it deprived the complainants of the 
right to appeal to and have the benefit of the individual 



446 Corporation Law as Applied 

judgments of the foreign stockholders upon any and 
all matters connected with the management of the 
corporation. * * *" 

This decision recognizes the rule in its relation both 
to equity and to public policy, viz. : Courts will not 
look with favor upon any arrangement wherein and 
whereby owners of shares in corporate ventures are 
deprived of their fixed and abiding right to have the 
present and active advice and aid of their co-owners, 
in matters pertaining to the corporation's property and 
interests. 

It is true that owners of shares in a corporation, 
under certain restrictions, may temporarily delegate 
their voting and advisory rights to other hands and 
refrain from active participation in its affairs. 

But there is a natural limit to this policy of passive 
behavior. Each shareholder is a fractional owner of 
the franchise and receives the attendant rights, privi- 
leges and benefits coupled with certain duties which he 
will not be permitted to surrender when it would breed 
injury to his co-stockholder. The wisdom and judg- 
ment of the owner of shares is an asset which inures 
to the benefit of all. To permit this feature of corpo- 
rate government to be either ignored or surrendered 
would be against the dictates of equity and public 
policy. All beyond the limits named is forbidden 
ground. 

See Warren vs. Pim, supra, and cases cited. 

A leading case is 



to Private Business Corporations 447 

Dickinson vs. Consolidated Traction Co., 114 Fed. 
Rep., 232 (1902). 
It touches the subjects: Power to alienate; power 
to lease and sue; rights of minority stockholder; the 
fraud of directors. 

Reasonable latitude allowed. — Stockholders of a 
business corporation may, in a case where no consider- 
ations of public policy are involved, authorize a trans- 
fer of the corporation to a new corporation and receive 
the stock of the new corporation in payment therefor. 
If, however, the transfer operates to defraud persons 
not parties to the agreement of their property without 
due process of law, it cannot receive the sanction of 
the court. 

Wilson vs. ^olian Co., 64 N. Y., App. Div., 337 

(1901), 
Unanimous decision ; opinion by Woodward, J. 

A portion of the stockholders of one corporation 
have the legal right to organize another corporation, 
and the corporation has the legal right to sell a part of 
its property to the new corporation, or to the individ- 
ual promoter thereof, before its incorporation. 

The corporation is separate and distinct from the 
stockholder. 

Goodwin vs. Botcan Lumber Co., 109 La., 1050 
(1902); (rehearing denied, 1903,) 

Corporations cannot consolidate without authority 
of law. 



448 Corporation Law as Applied 

A banking corporation may transfer its depositors' 
accounts to another bank, and may borrow money from 
such other banks to pay its depositors and may pledge 
its assets as security, etc., * * * and such action is 
not a consolidation or merger. 

Overstreet vs. Citizen's Bank (Supreme Court, Okla- 
homa, 1903), y2 Pacific Reporter, 379. 

Some reflections on the general theme of this chap- 
ter. — Perhaps it is allowable in this connection to 
recapitulate by showing the actual working of the plan 
of operation referred to in the title and which is under 
consideration in this chapter. 

As has already been stated, no doubt there are in- 
stances where the Holding Company has been conducted 
along lines advantageous to all the owners of stock, 
irrespective of amount ; but such instances are probably 
rare, and occur only where the interest of the acquiring 
party consists in promoting the prosperity of the con- 
cern, rather than its demolition or the utilization of 
its franchise and property to advance an ulterior end. 
Where the process of absorption of stock-control has 
been repeatedly exercised, and the Holding Company 
assumes large proportions and is perhaps dignified 
with the term of "Trust," some properties will of ne- 
cessity be thus favored in order to secure results in 
way of dividends on the investment ; but the ability to 
secure control of a rival in the manner named, and to 
destroy its business and annihilate the minority, is a 
power which is inequitable and unjust and which is 



to Private Business Corporations 449 

liable to be called into play when any unfair advantage 
is sought. 

Besides being a perversion and an oppression, the 
device referred to violates the axiom that "the whole 
is equal to the sum of all the parts/' since the owner- 
ship of a little more than half of the capital stock of 
one corporation carries with it the permanent manage- 
ment of the entire property of the others. To illustrate 
our meaning: Let it be assumed that an investor is 
the owner of one hundred and five thousand dollars 
of the capital stock of a Holding Company capitalized 
for two hundred thousand dollars; that such Holding 
Company has, by purchase of a majority of the stock 
of each at par, assumed control of three corpora- 
tions, each possessing a stock-capital of one hundred 
and twenty-five thousand dollars. It will be found 
that such share-owner has by his control of the Hold- 
ing Company obtained the right and power to manage 
and control property of others aggregating more than 
two and one-half times the amount of his own invest- 
ment. In brief, by an outlay of one hundred and five 
thousand dollars in the stock of a Holding Company, 
he can dictate the policy of subsidiary corporations 
representing an investment of three hundred and sev- 
enty-five thousand dollars in all. 

This paradox, contrary alike to the moral and the 
business sense, indicates the falsity of the position now 
occupied by the Holding Company. 

The dangerous feature of the Holding Company was 
presented at considerable length by Attorney- General 



450 Corporation Law as Applied 

Knox in his brief before the United States Supreme 
Court in the Northern Securities Case. 

Mr. Cook, in his valued work on Corporations, 
supra, has stated the rule to be that the whole prop- 
erty of "a going concern" cannot be sold without thq 
consent of every stockholder; and he adds that this 
principle has become "embedded in the jurisprudence 
of modern times." Therein he expresses the consen- 
sus of opinions of the ablest judges of courts of last 
resort. 

See Kean vs. Johnson, 9 N. J. Eq., 401. 
People vs. Ballard, 134 N. Y., 269, 
and other cases cited supra. 

If, then, the entire property cannot be transferred 
except by unanimous consent, why should the right 
to control the same be held in such light esteem that 
it passes with the sale of a bare majority of the shares 
that represent such ownership, and this to a corpora- 
tion whose stock-value is founded in large part on the 
capitalization of such control? The plan above out- 
lined, when it is observed in actual and active opera- 
tion and its effects are noted, seems to constitute a 
palpable attempt to accomplish by indirection what 
would be an ultra vires act if performed in the usual 
course, i. e., by a sale of all the property and rights of 
the servient corporation to the Holding Company. 

The grasping spirit of the age and a too general dis- 
regard for the rights of the weaker party have permit- 
ted customs such as this to expand until at last they 
have assumed alarming proportions. 



to^Pnvate Business Corporations 451 

The world has grown so familiar with these meth- 
ods that it now seems to acquiesce in the propriety and 
the necessity of such acts, however pernicious they 
may be in their ultimate results; and it has come to 
pass that the course outlined above is regarded (er- 
roneously, as we think,) as among the inevitable 
results of the employment of corporate forms in con- 
ducting business ventures. 

From the moment such subterfuge obtains, the self- 
perpetuating quality which produces corporate con- 
tinuity exists only as a means and instrument of 
oppression; for the minority shareholder this voting 
franchise is a mockery, a snare, a delusion. It is true 
that his expressed demands and his vote are formally 
received and recorded, and that in appearance he has 
preserved and still exercises his voting franchise; but 
for all effectual results he is henceforth reduced to a 
mere cipher, — a negligible quantity, — and his power 
and his influence are nil. This procedure, so arbitrary, 
so despotic and so entirely opposed to the principles 
of equity, would appear to be essentially dishonest in 
thus appropriating the property and rights of others 
without consideration or any adequate return. It vio- 
lates the contractual relation, which, as we have seen, 
exists between the corporation and its members, for- 
ever appropriating to those persons who control the 
Holding (or voting) Company the influence, the emol- 
uments and the possibilities of office that flow from 
the common venture. 

If the facts above stated are correctly outlined, and 



452 Corporation Law as Applied 

the conclusions therefrom are logically deduced, and 
if the practical results that flow therefrom are such 
as it has been our endeavor to set forth in the preced- 
ing pages, it seems reasonable to assume that such 
device, i. e., the Holding Company, is a violation of 
the constitutional provision which governs the con- 
tractual relation and guarantees the protection of ''due 
process of law" to and for all. 

If, again, and as we believe, there has been indicated 
a situation where the rights of innocent holders are 
damnified and no redress is obtainable within the lim- 
its of the rigid rules which prevail on the "law" side 
of the court, then, and in that event, a case is presented 
where the powers of Equity may and should be in- 
voked. The benign influence of that remedial institu- 
tion, — at once so elastic in its scope and so effective 
in applying the cure, — will then make itself felt, and 
the oppressing party will be restrained, to the end that 
equal justice in equal measure may be meted out to all. 

Whether the Holding Company infringes upon the 
doctrine contained in the text-books sub-capite "The 
Power of Alienation" and "The Rule Against Per- 
petuities," is a subject that can only be mentioned en 
passant here. 

It opens a field which is both important and inviting, 
and which will well repay investigation. 

With regard to the abuses referred to above, some 
suggestions as to the nature, etc., of the remedy will 
be found in the succeeding chapters. 



to Private Business Corporations 453 



CHAPTER XXIV. 

Corporations as Affected by Constitutional 
Provisions. 

Certain constitutional provisions particularly concern 
corporations. — Same enumerated. — Impairment 
of obligation of contracts. — Contractual relation is 
settled law. — Reservation of right to amend. — 
Exercise of reserved power must conform to Federal 
Constitution. — Every such amendment is neces- 
sarily fundamental. — Vested rights as affected by 
amendment of charter. — Subject of holding com- 
panies is likewise concerned herein. — Modern situ- 
ation akin to ancient problem of mortmain. — 
Deprivation of property without due process of law. 
— Termination of corporate independence should 
require dissolution and division of assets. — Con- 
stitutional amendment as construed by courts. — 
Constitutional provisions and foregoing divisions 
are contravened by scheme of Holding Company. — 
Administrative reform which the situation demands. 

Certain constitutional provisions particularly con- 
cern corporations. — Certain provisions of the United 



454 Corporation Law as Applied 

States Constitution which are also contained in the 
Constitutions of most of the several States, apply 
particularly to corporate bodies, governing and pro- 
tecting them in their relations with individuals or inter 
sese with the same force and to the same extent (so 
far as their nature permits), as if these creatures of 
the law were human entities. 

Same enumerated. — These constitutional provisions 
may be placed under two heads, viz. : 

1. The impairment of the obligation of contracts. 

2. The deprivation of property without due process 
of law. 

Impairment of obligation of contracts. — In regard 
to the first of the above divisions, the material words 
of Section lo of Article i of the United States Consti- 
tution are: 

*'No State shall * * * pass any bill of attainder, 
ex post facto law, or law impairing the obligation of 
contracts. * * *" 

Contractual relation is settled law. — In this con- 
nection it may be accepted as settled law (as has been 
repeatedly set forth in this work), that the relation 
between the shareholder and the corporation is one 
of contract, and that the shareholder's privilege to vote 
and to be voted for and to share in the offices of the 
corporation is a vested right and constitutes property. 
It was so held in the famous Dartmouth College case 



to Private Business Corporations 455 

by Chief Justice Marshall and Justice Story, 4th 
Wheaton, 514, and is now the law of the land. 

See that case, quoted at some length in Chapter 
XXIII, "Holding Companies," supra. 

Reservation of right to amend. — That decision hav- 
ing been based, in part, upon the absence of any res- 
ervation of power to repeal, etc., in the charter, — the 
custom arose of inserting in the Constitution or gen- 
eral laws of the several States a provision that corpora- 
tions subsequently formed should be subject to legis- 
lative amendment as to their chartered rights. 

Exercise of reserved power must conform to Fed- 
eral Constitution. — But this requirement, while in 
terms usually an absolute condition in the grant, is, in 
fact, subject in its turn to the Federal Constitutional 
proviso that '^the obligation of contracts" shall not be 
disturbed by legislation which is wanton, wasteful or 
unnecessary in its essential features. 

Thus, it has been held that the reserved power to 
amend the charter is a right to be exercised by the 
legislature in a manner consistent with the Constitu- 
tion for the time being. 

Matter of Reciprocity Bank, 22 N. Y., 9. 

"The power of repeal extends only to the franchise, 
and not to property rights acquired under it." 

Abbofs Cyclopedic Dig. (N. Y.), Vol. Ill, 641. 

Citing, People vs. O'Brien, 45 Hun., 519; affirmed iii 
N. Y., I. 



4S6 Corporation Law as Applied 

Mr. Justice Gray, in passing on such a reservation, 
affirms the legislative right to amend a charter, but 
intimates that such powers may be limited to enacting 
laws which will "not defeat or substantially impair 
the object of the grant, or any vested right." 

Looker vs. Maynard, 179 U. S., 46 (1900). 
Corporations organized under a general law, and 
those especially chartered, stand in the same position 
as to right of amendment. 

People ex rel. Sturgis vs. Keese, 2y Hun., 483. 
The foregoing case was concerning a religious cor- 
poration, but sustained the general proposition. 
Barnes vs. Arnold, 51 N. Y., Sup., 1109. 
Citing, People vs. O'Brien, loi N. Y., i ; which 
strongly holds the property-value of franchise rights. 
The power to amend leads directly to the considera- 
tion of the underlying principles of chartered rights; 
for, as has been seen, charters granted to private cor- 
porations are held to be contracts. 
Wilmington R. R. vs. Reid, 13 Wallace (80 U. S.), 
264. 
See this with numerous cases quoted in Chapter 
VIIL, "Charter," supra. 

Every such amendment is necessarily fundamental. 

— "Every alteration of a contract implies a new con- 
tract, and every amendment of a charter, if allowed, 
grants a new charter." 

Spelling on Private Corporations, Vol. i., sec. 30. 

For this and other extracts see Chapter VIIL, supra. 



to Private Business Corporations 457 

"Changes in the purpose or object of an association 
* * * are necessarily fundamental in their char- 
acter.'' 
Susquehanna Boom Co. vs. Dubois, 58 Penn. St., 185. 

This subject is treated of somewhat in extenso in 
Chapters VIII. and IX., "Charter," and Chapter 
XXIIL, "Holding Companies." 

Vested rights as affected by amendment of char- 
ter. — A vested right has been defined by high author- 
ity as "an immediate fixed right of present or future 
enjoyment." Fearne on Contingent Remainders, quot- 
ed by Mr. Justice Brown in Pearsall vs. Great North- 
ern R. R., 161 U. S., 673; see Chapter VIII., supra. 

It requires no argument, therefore, to show that 
chartered rights occupy a place in this settled and, as 
it were, crystallized form of property, based upon con- 
tractual rights. 

Under the doctrine of the Dartmouth College case 
and the long line of cases upholding and sustaining 
it, there can be no doubt that these vested interests 
may not be disturbed except within the constitutional 
limitation; therefore, it is not beyond a reasonable 
view of the situation to assert that the doing of these 
things by indirection, fractures in an equal degree the 
protective structure built about those interests. 

Subject of Holding Companies is likewise concerned 
herein. — The subject of "Holding Companies/' Chap- 
ter XXIIL hereof, is important and relevant in this 
connection and reference is had thereto. 



458 Corporation Law as Applied 

The vested rights which the corporation acquires by 
conforming to the statutory requirements incident to 
its creation, include the privilege for the individual 
shareholder to exercise voting power, and to be eligi- 
ble to occupy official positions in its management ; and 
as has been shown, this is "property." 

The Dartmouth College case and its following are 
final and convincing in their logic and authority on 
that point. 

Modern situation akin to ancient problem of mort- 
main. — As in a remote period of English history, re- 
ligious corporations sought to retain the institution of 
mortmain after the abolition thereof by Parliament, 
and accomplished that purpose through the creation of 
a fictitious beneficiary; so modern corporate bodies, in 
a similar situation, have sought to negative the right 
to vote, etc., on the part of the minority shareholder, 
by the device of a separate company, which perma- 
nently takes over the controlling stock-interests, leav- 
ing to its associates only the empty shell of seeming 
independence. This device is known as the ''Holding 
Company," already referred to. 

Deprivation of property without due process of law. 
— Section i of the Fourteenth Amendment of the 
United States Constitution is as follows, in part: 

"* * * nor shall any State deprive any person 
of life, liberty or property, without due process of 
law. * * *" 

It has already been shown that the right of the 



to Private Business Corporations 459 

shareholder to vote, etc., is ''property," and it may be 
stated as a reasonable definition of ''due process" that 
it is orderly procedure along the lines provided by law. 

Termination of corporate independence should re- 
quire dissolution and division of assets. — Every State 
has supplied a course of procedure whereby a cor- 
poration which has ceased to do business may wind 
up its affairs and divide its assets among the share- 
holders. This is the only course which is compatible 
with orderly procedure, and within the rule as to "due 
process," as contained in the Constitution. Obedience 
to that rule requires that all acts amounting to the 
termination of a corporate existence, i. e., the aban- 
donment of its business, the surrender of the voting 
franchise to another corporation, or the like, should 
involve the immediate dissolution of the corporation, 
and this to comply with the true intent and meaning 
of the words aforesaid. 

That the contrary rule is at present in vogue is no 
answer to this reasonable interpretation of the words 
of the Constitutional Amendment above quoted. 

Such construction of this protective element of the 
Constitution would at once, ipso facto, remove the 
greater part of the evils enumerated in Chapter 
XXIIL, "Holding Companies," and it is the opinion 
of the author that the courts will ultimately so hold. 

To adopt the contrary view means to endorse and 
approve of the appropriation of the property rights of 
the minority, without "due process," or any "process," 



460 Corporation Law as Applied 

excepting such as in the ordinary course of affairs 
originates and exists only in the minds of designing 
persons. 

The existing situation is, in that regard, inequitable 
in the highest degree ; it cannot be regarded as within 
the purview of the Constitution, and eventually it must 
meet with disapproval on the part of every just and 
impartial mind. 

Constitutional amendment as construed by courts. — 

Turning to the somewhat narrow limits within 
which this subject has been passed upon by the Fed- 
eral and State courts — the term "due process of law" 
has been defined and interpreted in the courts from 
time to time, and these definitions show a remarkable 
continuity of opinion. 

That portion of the Fourteenth Amendment guaran- 
teeing "due process of law" means that there can be no 
deprivation of life, liberty or property without observ- 
ance of those general rules established in our system 
of jurisprudence for the security of private rights. 
Hagar vs. Reclamation, etc., iii U. S., 708. 

The expression "due process," etc., refers to that 
law of the land in each State deriving authority from 
inherent and reserved powers of the State exerted 
within the limits of fundamental principles of liberty 
and justice underlying our civil and political institu- 
tions. 

Hurtado vs. People of California, no U. S., 535. 

In an earlier decision the court leaves the matter of 



to Private Business Corporations 461 

a precise definition to be solved by the process of legal 
evolution. The phrase ''due process of law," in the 
Constitution, remains without precise definition ; there 
is wisdom in ascertaining its meaning, by a gradual 
process of judicial inclusion and exclusion, as cases 
presented require. 

Davidson vs. New Orleans, 96 U. S., 104. 

Cases decided under this provision of the Constitu- 
tion, and along lines parallel with the subject matter 
of the present chapter, are not wanting in the reports 
of the United States Supreme Court decisions and in 
the reports of some of the States. 

Where a semi-criminal complaint contains no charge 
against any specified person, nor the substance of the 
facts constituting the alleged offence, and where the 
right of a jury trial is dependent upon giving a bond 
to pay costs, such procedure is not according to "due 
process of law" and the "law of the land," and the 
initial court acquired no jurisdiction under such a 
pleading. 

Greene vs. Briggs, i Curt. (U. S.), 311 (1836). 

The foregoing decision cites Lord Coke, 2 Ins. — to 
the effect that "due process of law," as contained in 
Magna Charta, confers the right to presentment or 
indictment and being brought in to answer thereto. 

Because neither the State Constitution nor the laws 
of California relating to the assessment of railroads 
operating in more than one county provide for notice 
to the owner, or an opportunity to be heard at any 
stage of the proceedings, they both conflict with the 



462 Corporation Law as Applied 

constitutional guarantee that no one shall be deprived 

of his property without "due process of law." 

San Mateo County vs. Southern Pacific R. R. Co., 13 

Fed. Rep., 722. 
A leading case; see very able and exhaustive opinion 
of Field, J., and note to case. 

"Due process of law," as contained in the United 
States Constitution, requires that a party shall be prop- 
erly brought into court, and have an opportunity when 
there, to prove any fact which, according to the Con- 
stitution and usages of common law, would be a pro- 
tection to him or to his property." 
People ex rel. Witherby vs. Supervisors of Essex, 70 
N.Y., 222 (1877). 

"Due process of law" implies notice or an opportunity 
to be heard, which the statute must provide for; and 
it is not enough that in the particular case notice was 
in fact given. 

Matter of City of Brooklyn, 87 Hun. (N. Y.), 54. 

The legislature cannot take the property of one per- 
son and transfer it to another, even for compensation, 
unless the public interest will be promoted. 
Beekman vs. Saratoga and Schenectady R. R. Co., 3 

Paige (N. Y.), 45 (Chancery, 1831). 
Taylor vs. Porter, 4 Hill (N. Y.), 140 (1843). 

A statute authorizing private property of a person 
to be taken, against his consent, for the private use of 
another, although compensation is made, violates the 
provisions of the Constitution that no person shall be 



to Private Business Corporations 463 

deprived of property without ''due process of law"; 
and the constitutional provision authorizing private 
property to be taken for public use implies that for any 
other use it shall not be taken. 

Matter of Albany Street, ii Wend. (N. Y.), 149 
(Supreme Court, 1834). 
"It (such taking of private property) is in violation 
of natural right, and if it is not a violation of the letter 
of the Constitution, it is of its spirit, and cannot be 
supported." 

Ibid. 

See cases in various States cited thereunder in 25 
Am. Dec, 618 to 622, and note thereto. 

In Hallinger vs. Davis, 146 U. S., 320, Mr. Justice 
Shiras said: 

" 'Due process of law' is process due according to 
the law of the land. This process in the States is reg- 
ulated by the law of the State." 

In Davidson vs. New Orleans, 96 U. S., 97, an 
assessment was resisted and brought into that Court 
by a writ of error, from the Supreme Court of the 
State of Louisiana. In the opinion of the court, de- 
livered by Mr. Justice Miller, will be found an elab- 
orate discussion of this provision as found in Magna 
Charta and in the Fifth and Fourteenth Amendments 
to the Constitution of the United States. 

The conclusion reached by the court was, that it is 
not possible to hold that a party has, without due 
process of law, been deprived of his property when, as 



464 Corporation Law as Applied 

regards the issues affecting it, he has, by the laws of 
the State, a fair trial in a Court of Justice, according 
to the mode of proceeding applicable to such a case. 
Mr. Justice Bradley, while concurring in the judg- 
ment and in the general tenor of the reasoning by 
which it was supported, criticized the language of the 
Court "as narrowing the scope of inquiry as to what 
is due process of law, more than it should do." 

The general idea contained in the last quoted and in 
kindred decision seems to be that each and every State 
having its own way, and according to its own meth- 
ods of procedure, provided "ways and means" by 
which suitors may obtain protection from wrongs or 
redress for the same, "due process of law" means that 
all of these ways, means and methods shall be open 
and available to any party seeking the same, to the 
end that he shall have his "day in court," with a fair 
judicial investigation of the facts involved in the par- 
ticular case. 

Telegraph Co. vs. Railway Co., 9 Bissell, 9, is con- 
clusive as to that point. 

"Due process of law," as applied to judicial proceed- 
ings instituted for the purpose of taking private prop- 
erty for public use, means such process as recognizes 
the right of the owner to just compensation 'for the 
property taken. 

Phillips vs. Postal Telegraph Co., 130 North Carolina 
Reports, 513 (1902). 

The very able opinion in the above case was by Mr. 



to Private Business Corporations 465 

Justice Douglass. In conclusion he quotes from Tele- 
graph Co. vs. Ry. Co., 9 Bissell, 9: 

''It is true that the purposes of the petitioner {i. e., 
Telegraph Company) are greatly for the public benefit, 
that it is an important factor in interstate commerce, 
one of the agencies, — and a most valuable agent, — in 
interstate commerce, and that it is of most essential 
service to the citizen in the time of peace and to thi 
Government in time of war. 

"But the underlying proposition in our civilization 
and in Anglo-Saxon liberty is the protection of the 
citizen in the safety of his person and in the undis- 
turbed enjoyment of his property, and when he is 
called upon to surrender that property against his will 
for a public purpose, he is entitled to all the safeguards 
which the law has thrown around the exercise of the 
tremendous, though wholesome, right of eminent do- 
main." 

The essential elements of due process of law are 
notice and opportunity to defend, and in determining 
whether such rights are denied the Court is governed 
by the substance of things and not by mere form. 
Simon vs. Craft, 182 U. S., 427. 

An important case is Meffert vs. State Board, ^2 
Pacific Reporter, 247. 

The opinion by Mr. Justice Greene is sustained by 
many citations. 

A case which is not only cited, but quoted quite ex- 
tensively is State vs. Board of Examiners, 34 Minne- 
sota, 387. 



466 Corporation Law as Applied 

Among the extracts thus approvingly employed we 
note the following: 

''Due process of law, or the law of the land, which 
means the same thing, is not necessarily legal pro- 
ceedings." 

"When it is declared that a person shall not be de- 
prived of his property without 'due process of law,' it 
means such an exercise of the powers of Government 
as the settled maxims of law permit and sanction, 
under such safeguards as these maxims prescribe for 
the class of cases to which the one in question belongs." 

To proceed further in proof of the position that 
corporate rights cannot be alienated except by consent, 
or for a public purpose and for just compensation after 
notice, seems to be an act of supererogation. Ac- 
cordingly, the reader is referred to the contents of 
the preceding chapter, where that phase of the subject 
is entered upon quite fully. 

Constitutional provisions and foregoing decisions 
are contravened by scheme of Holding Company.— If 

the foregoing decisions are correct in their interpre- 
tation and exposition of the theory of our law, as em- 
bedded in the Constitution itself, under what authority 
is it possible to condone acts of the majority in trans- 
ferring permanently to another corporate body, i. e., 
to a "Holding Company" the control of the voting 
power which belongs pro tanto equally to every owner, 
and as has been shown abundantly, is his vested right ? 



to Private Business\Corporations 467 

Such action appears to savor of confiscation under 
and within the forms of law, and doubtless — as al- 
ready stated herein — will be dealt with accordingly by 
Equity, at such time as the question shall be presented 
to the conscience of the Court. 

While the decisions contained in this chapter have, 
of course, a general application, and will be useful in 
that connection, they seem especially apposite when 
considered in their relation to the subject matter of 
the last preceding chapter, "Holding Companies," and 
accordingly the attention of the reader is again directed 
thereto, notwithstanding some apparent duplication. 

That subject being of comparatively recent origin 
and no attention having been accorded thereto in any 
of the valued works of learned text-writers, and none 
appearing in any of the adjudicated cases, the author 
has been compelled to travel afield for authorities anal- 
ogous to those which, no doubt, exist even now in an 
embryonic state. 

Accordingly, the subject possesses interest in double 
measure : first, from its novelty ; and second, from the 
intrinsic importance thereof to every owner of a share 
of corporate stock. 

The spirit of spoliation, which is exemplified in the 
"Holding Company" of to-day, marks a distinct ele- 
ment of retrogression and decadence. It is impossi- 
ble to register too strongly in terms the reprobation 
and opposition which all well-intending persons should 
feel therefor. 



468 Corporation Law as Applied 

Administrative reform which the situation demands. 

— The position outlined in this and the preceding 
chapters, — which, as will have been noted by the read- 
er, are permeated throughout by one central and con- 
necting idea, — is one which has been deliberately as- 
sumed. It is as confidently believed that time will jus- 
tify such position. 

Regarding the form of the relief against the situa- 
tion, it is probable that it will appear either by way 
of legislation confirmatory of these constitutional pro- 
visions and carrying into effect their intent by specific 
delimitation of the right of the majority to convey to 
and vest in a "Holding Company" the corporate con- 
trol ; or that courts of equity will exercise their inher- 
ent powers in the premises, and cure this species of 
injustice by restrictive decisions aimed at the evil al- 
luded to above. Certainly, relief will appear in one 
or the other of those forms, and it may be remarked 
that it does not particularly concern the public by 
which road it arrives, so long as the cure is speedy and 
permanent. 

There will arise contemporaneously with this change 
in the theory of control, a wider and more abiding con- 
fidence in the desirability of shares of stock as an in- 
vestment for persons of small or moderate means, and 
such change in turn will yield financial benefits to the 
corporations concerned. The benefits referred to con- 
sist in the increased volume of capital that thenceforth 
will flow into their treasuries, thereby enabling such 
companies to undertake larger or more numerous ven- 



to Private Business Corporations 469 

tures; and it is readily to be seen that this confidence 
bred of conservatism will lead in the end to the financ- 
ing of many enterprises of merit, and thereby prove 
itself of great advantage to the community at large. 

Having now reached the place in our work where 
we have taken up and considered in their order those 
vital questions which are bound to arise in the course 
of conducting business under corporate forms, we rec- 
ognize that we are approaching the close of our labors. 

Those general remarks which the subject seems to 
lead up to and require must, however, be deferred for 
the moment, and we will ask the further indulgence of 
the reader while we present in a separate chapter, as 
concisely as may be, the theory underlying the act of 
dissolution of the corporation and the resultant ter- 
mination of the relations borne thereto by stockhold- 
ers and others. 

Such mention is contained in the ensuing chapter. 



470 Corporation Law as Applied 



CHAPTER XXV. 
Termination of Corporate Existence. 

Corporative existence ceases by limitation or by judicial 
dissolution. — Grounds for termination. — Death of 
all its members no longer valid ground. — Authori- 
ties on subject generally. — Local rules and pro- 
cedure prevail. — Remarks on subject of chapter. 

Corporative existence ceases by limitation or by ju- 
dicial dissolution. -— Chief Justice Marshall, in 
Head & Armory vs. The Providence Ins. Co., 2d 

Cranch (6 U. S.), 150, etc., 
said: 

''A corporation can act only in the manner pre- 
scribed by the act of incorporation." 

To this may be added what Mr. Judge Vann said in 
People vs. Ballard, 134 N. Y., 269: 

"A corporation cannot cease to exist of its own will ; 
its life continues until either the charter period has 
expired, or the court has decreed a dissolution." 

The foregoing case is important and is worthy of 
careful study. 

Grounds for termination. — But before further ex- 



to Private Business Corporations 471 

amination of the subject, it may be well to note the 
various grounds on which these two forms of cessa- 
tion, i e., expiration of charter or loss of franchise can 
take place. 

These causes are as follows: 

First. — The expiration of the period limited in the 
charter. This occurs, not from the act of anyone, but 
merely from the effluxion of time. Although it is to 
be remembered that the corporation is dissolved by the 
lapse of the time specified in its charter, still, for the 
purpose of closing out its business, selling its property, 
paying its debts and dividing the surplus, it still ex- 
ists in the eye of the law, pro tempore. A corporation 
which, in this manner, has ceased to exist is said to 
have expired by limitation; all the other forms of 
cessation fall under the second head, i. e., loss of 
franchise. 

Second. — The failure on the part of the corporators 
to perform, within a reasonable time, any acts which 
are necessary prerequisites to the full and complete ex- 
ercise of its corporate powers. 

Third. — The surrender of the franchise to its cre- 
ator, with the consent of its stockholders. The creator, 
I. e.j the State, is not, however, bound to accept such 
surrender. 

Fourth. — By judgment and decree of a court of 
competent jurisdiction. 

Fifth. — Compliance with the statutory regulations 
as to dissolution and distribution of assets prevailing 
in the several States. 



472 Corporation Law as Applied 

Sixth. — By consolidation, merger, etc., in any of the 
ways indicated in Chapter XXII, "Amalgamation," 
etc. A useful suggestion for future statutory regulation 
will be found in the provision as to compulsatory com- 
pensation for minority share-owners, contained in the 
New York Insurance Law, sec. 179 (Laws of 1892, 
Chap. 690, sec. 179, as enlarged by Laws of 1901, 
Chap. 6yy). 

Death of all its members no longer valid ground. — 

Some of the earlier writers have named, as a cause tor 
dissolution, the death of all its members; but with the 
*Trivate Business Corporation," as now constituted, 
the deceased stockholders' interest, including the vot- 
ing power, passes immediately to the legal representa- 
tives of the deceased, so that no hiatus occurs. 

Authorities on subject generally. — In Georgia it 
was held that the bankruptcy of a corporation did not 
put an end to its existence nor vacate the office of the 
directors. 

''The bankruptcy of a corporation does not put an 
end to the corporate existence, nor vacate the office o± 
the directors. A corporation of this State cannot be 
dissolved by an act of congress, or by the administra- 
tion thereof, through the Federal Courts. Georgia 
created, and she alone can destroy." 

Holland vs. Heyman, 60 Georgia Sup. Court Rep,, 

174; 
opinion by Judge Bleckley. 



to Private Business Corporations 473 

"A corporation must be governed by the law which 
creates it and by those legislative enactments which 
in terms apply to it." 
Ryan vs. Vallandingham, 7 Indiana, 416 (syllabus). 

''If (said) corporation shall fail to go into operation, 
or shall abuse or misuse their privilege under their 
charter, it shall be in the power of the legislative as- 
sembly to annul, vacate and make void the charter." 
The Miners Bank of Dubuque vs United States, i 
Greene (Iowa), 553. 

It has been judicially determined as well-established 
doctrine that a corporation once created cannot cease 
to exist by non-use or misuse; but must end its exist- 
ence either by the limitation of time or by judicial ter- 
mination. 

State ex rel. City of Spartanburg vs. The Spartan- 
burg, Clifton, etc., Ry. Co., 51 South Carolina 
Rep., 129 (1897). 
In the above the learned Mr. Justice Jones said, 
quoting 

Morawetz on Corporations, Vol. II., p. 1006, — 

"A distinction must, however, be observed between 
modes limiting the existence of a corporation until the 
happening of a prescribed event and the provision mak- 
ing the happening of the event a cause for declaring 
a forfeiture of the charter as upon condition subse- 
quent. 

'Tn the former case, the charter will expire of its 
own self by its own limitation, but, in the latter case. 



474 Corporation Law as Applied 

a judicial determination of the ground of forfeiture is 
required before the corporation becomes dissolved." 

A manufacturing corporation may discontinue its 
operation when unprofitable, for the purposes of pro- 
tecting its shareholders from further loss. 

Skinner vs. Smith, 134 N. Y., 240. 

After dissolution of a corporation a shareholder may 
not transfer his share, for the contract of membership 
is at an end and novation is not possible. 

See, Morawetz on Corporations, Vol. L, sec. 168. 

Local rules and procedure prevail. — In the several 
States the rules and procedure governing the termina- 
tion of corporations have been established by statute; 
but the particulars in such matters cannot be touched 
upon here; reference to the local laws which control 
will be necessary in every instance. 

Remarks on subject of chapter. — Within the brief 
confines of this chapter there have been set forth at 
sufficient length for our purpose those methods of ter- 
mination which alone have been recognized as consti- 
tuting ''due process of law." 

It is to this simple and orderly manner of ending the 
existence and distributing the assets that reference has 
been repeatedly made herein ; it is this procedure which 
has been advocated and preferred in conformity with 
the dictates of equity and fair dealing; and it is the 
annexation of one corporation to another in avoidance 
of such dissolution, and the continuation of that de- 
pendent state after the distinctive career of such corpo- 



to Private Business Corporations 475 

ration has ended, to which objection with equal fre- 
quency has been raised. 

With these remarks touching the particular subject 
wherein the matter contained in this chapter has an 
especial significance and bearing, we now leave the 
region of citations and research to a later explorer, and 
turn to such reflections on the general theme as will 
occupy our remaining pages. 



476 Corporation Law as Applied 



CHAPTER XXVI. 

In Conclusion. 

Underlying principle of Anglo-Saxon jurisprudence. — 
Oppression by directors, etc., violates that principle. 

— Application not remote. — Right to participate 
is concerned therein. — A solid and firm right. — 
This right permeates the corporation, extending to 
every share. — It pertains to and follows the stock. 

— Reason for this right. — Majority-control no 
answer to claim of right to participate. — Limita- 
tions of powers of directors as representatives of 
majority-interest. — Allusion to constitutional pro- 
hibition against the taking of private property, etc. 

— This constitutional provision applied to oppressive 
acts of directors. — Occasion for these remarks. — 
National well-being requires that the foregoing 
principle shall be firmly enforced. — Means of 
redress exists. 

Underlying principle of Anglo-Saxon jurisprudence. 

— There is imbedded in English and American institu- 
tions a spirit which has steadfastly opposed every 
species of fraud, oppression and injustice; and it is 
one result of this proper sentiment that the rightful 



J 



to Private Business Corporations 477 

owner can not be deprived of his property, even by 
the sovereign State, except by ''due process of law." 

Oppression by directors, etc., violates that princi- 
ple. — Oppressive acts by directors or majority stock- 
holders, such as have been referred to herein, are in 
contravention of this spirit, which is the embodiment 
of plain dealing and "fair play." 

Application not remote. — Nor is the application of 
this natural sentiment so remote as at first sight ap- 
pears. Those who contribute of their substance either 
in money or property in the formation and equipment 
of business corporations, part, indeed, with the tech- 
nical title and ownership of their property; but they 
still retain an interest in its earnings during the life 
of the institution, and in the distribution of its assets 
when from any cause it ceases to exist. 

Right to participate is concerned therein. — In addi- 
tion to the above, and quite as important, is the right 
to participate in the management, through and by the 
means of corporate meetings; to assist in the election 
of officers, and to themselves hold offices, — privileges, 
as has been shown, which are declared by the highest 
courts to possess intrinsic value and to be of the class 
of "vested rights," within the meaning and protection 
of both State and Federal Constitutions. 

A solid and firm right. — This ownership is as solid 
and as firm as any right can be, and the directors or 
majority stockholders who deprive their co-stockhold- 



478 Corporation Law as Applied 

ers of any of the above-mentioned rights and interests 
transgress that constitutional principle, and Equity 
will compel them to make amends for such act. 

This right permeates the corporation, extending to 
every share. — The technical title to the corporate 
property being in the corporation itself, every injury 
imports into the corporate body the right to demand 
redress. Such right permeates, so to speak, every 
vein and artery; it adheres and belongs to each share; 
and because each and every individual share represents 
an integral part of the corporate body, the shares of 
the guilty majority are affected equally with those of 
the minority. 

It pertains to and follows the stock. — It may well 
be that the wrong-doers are estopped from asserting 
such rights in a court of equity, because they lack the 
prerequisite of ''clean hands" ; but the right accrues to 
the shares of stock and not to the individual ; and such 
holdings, when transferred to innocent owners, carry 
with them the ability to apply to equity for redress, 
even when the original holder, — the wrong-doer, — is 
shut out. 

However much the principle just stated may con- 
flict with the general opinion (and here Morawetz and 
Cook stand opposed to one another), it is, neverthe- 
less, the logical deduction which flows from the appli- 
cation of established rules. 

To recapitulate, shares purchased in the open market 
may be used as the basis for a stockholder's action, 



to Private Business Corporations 479 

even though it transpires that such shares were, at the 
time of the perpetration of the wrong, the property of 
a tort-feasor. 

Reason for this right. — And the right exists be- 
cause the wrong, in the legal aspect, was against the 
corporate body. To it has accrued the right to redress, 
and into its treasury must be paid the proceeds, in 
reparation for the injury thereby sustained. 

Majority-control no answer to claim of right to par- 
ticipate. — It may, perhaps, be said in answer that 
where one contributes his money or property as a 
shareholder in a corporation, he does so well knowing 
that the majority of the stockholders will appoint a 
directorate, and that to them and to their judgment 
and discretion will be confided all the business and 
affairs of said corporation, for the law imputes to him 
such knowledge. 

This is not denied, but rather affirmed ; at the same 
time, however, it is to be remembered that there exist 
contain principles which the contributing or purchas- 
ing stockholder has an assured right to believe in and 
to rely and act upon, viz. : 

That the directors being trustees, quasi-trustees, or, 
at the very least, occupying a fiduciary position to- 
ward him, will live within, according, and up to the 
rules governing such relationship. 

It is not claimed that such directorate is to be ham- 
pered or embarrassed by the varied caprices, whims or 



480 



Corporation Law as Applied 



notions of one or more dissident stockholders, — ^that 
is not it ; but the directorate must act properly, hon- 
estly and infra vires, and must not trangress the rules 
appropriate to and governing the situation. 

The minority stockholder, as has been well estab- 
lished, and is heretofore noted, is not called upon nor 
required to examine into or watch the acts of direct- 
ors; he has a fixed legal right to assume and believe 
that such directors will act as they ought, and not 
otherwise. 

Limitations of powers of directors as representatives 
of majority-interest. — The director-trustee, while he 
has unrestrained powers within the limitations im- 
posed by deed and law, must see to it that he acts as 
he should, and if he is discovered as being about to 
act in contravention to such rules as should govern 
him, a court of equity, on proof, will restrain him ; or 
if he has accomplished any wrongful and improper 
thing the same court must hold him liable to the cor- 
poration, at the instance of a complaining stockholder. 

In fine, when he (the director) steps over and be- 
yond the province laid down as his, or acts improperly, 
he does so at his peril; and if in so doing he injures 
the corporate body whose trustee he is, he will be made 
to refund or make reparation. 

Allusion to constitutional prohibition against the 
taking of private property, etc. — Allusion has already 
been made to the constitutional requirement that pri- 
vate property shall not be taken for public use without 



to Private Business Corporations 481 

adequate compensation. If, then, private property 
may not be thus appropriated even for the public wel- 
fare, how much more antagonistic is it to the spirit 
of such Constitution to say that because of a charter, 
or power, or set of powers and privileges granted 
by the people through its representatives, certain 
individuals to whom the exercise of those powers 
have been intrusted, may, with impunity, take a citi- 
zen's property or property rights, without compensa- 
tion, and retain it to their own use and that of their 
confreres. 

This constitutional provision applied to oppressive 
acts of directors. — It is insisted that when a director, 
by indirection, and by cover of his office, diverts into 
his own possession or to his own use or to that of his 
friends or privies, the property or property rights of 
any person in the corporate assets without that per- 
son's consent, and proper compensation, such di- 
rector, by such act, has violated the Constitution in 
spirit if not in terms, and that there exists no case 
where courts are called upon more properly and more 
urgently to decree reparation, both as compensation 
for wrong done and to prevent future acts of robbery 
and spoliation. 

The laws are for the weak as well as for the strong. 
They are, in fact, most requisite for the otherwise de- 
fenseless party. 

Occasion for these remarks. — The facts have made 
these remarks applicable because comparatively few 



II 



482 Hand Book of Corporation Law 

of the lesser stockholders have had the courage to 
press home and demand their rights in the courts, and 
to call its beneficent powers to their aid. 

National well-being requires that the foregoing prin- 
ciples shall be firmly enforced. — Public policy and the 
financial prosperity of the nation require that the 
courts shall firmly and strictly apply the rules of law 
and equity which hold directors and the controlling 
interests they represent accountable, not for errors in 
judgment, not for failure of business enterprises and 
schemes undertaken in good faith and for an honest 
purpose, but for the wrongful and wilful diversion of 
corporate property and funds into their own pockets, 
or those of their friends, by any means, in any way or 
for any reason, however specious it may be, or under 
whatever subterfuge sought or advanced by such di- 
rectors. 

The wrong is unquestioned and unquestionable, and 
in the language of Lord Hardwicke, ''* * * there 
can be no injury but there must be a remedy. * * *" 

Means of redress exists. — - It is earnestly submitted 
that the road to redress exists, and that it is indicated 
in the foregoing pages. 

FINIS. 



II 



TABLE OF CASES. 



Abbott VS. American Hard Rubber Co., 33 Barb. 

(N.Y.)578.. 87,91 

Abbott vs. Johnstown, etc., R.R. Co., 80 N. Y. 27. 103 

Aberdeen Ry. vs. Blaikie, i Macqueen H. of L., 

461 360 

Alabama & T. R.R. Co. vs. Kidd, 29 Ala. 221 . . 276 

Albany Street, Matter of, 11 Wend. (N. Y.) 149. 468 

Alexander vs. Automatic Tel. Co., Ltd, 16 Times 

Law Rep. 339 308 

Allen vs. Gillett, 127 U. S. 589 306 

Anderson vs. Nichols, 28 N. Y. 600 198 

Argents vs. City of San Francisco, 16 Cal. 255 ... . 79 

Argus Co. vs. Manning, 138 N. Y. 557 256 

Aspinwall vs. Ohio & M. R.R. Co., 20 Ind. 492 . . 45 

Aspinwall vs. Torrance, i Lans. (N. Y.) 381 294 

Atchison, Topeka, etc., Co. vs. Cochran, 43 Kan. 

225 32 

Atlantic Fire Ins. Co. vs. Sanders, 36 N. H. 269. . 252 

Attorney General vs. Bay State, etc., 99 Mass. 

148 61 

485 



486 TABLE OF CASES 

Attorney General vs. Belfast Corporation, i Irish 

Rep's 200 393 

Attorney General vs. Great Eastern Ry., L. R. 5 

App. Cas. 473 76 

Attorney General vs. Railroad Co., 35 Wis. 425- 

608 152 

Attorney General vs. Utica Ins. Co., 2 Johns. 

(N. Y.) Ch. 371 303, 375 

Atwood vs. Merryweather, L. R. 5 Eq. 464n. 

221, 284, 392 

Austin vs. Selectmen of Charlestown, 16 Pick. 

(Mass.) 121 164 

Bacon vs. Robertson, 18 How. (U. S.) 480 383 

Bagslow vs. Eastern Union Ry. Co., 2 McNaght 

&G. 389 72 

Baker vs. Humpkeys, loi U. S. 494 266 

Balte vs. Bellins, 15 Hawaii, 151 307 

Baltimore vs. Wilkmin, 30 Md. 224 180 

Baltimore & Ohio R.R. Co. vs. Gallahue's Adm'rs, 

12 Gratt. (Va.) 663 27 

Baltimore, etc., R.R. Co. vs. Musselman, 2 Grant's 

(Pa.) Cases 347 418 

Bank vs. Lanier, 11 Wall (U. S.), 369. . . .194, 195, 201 

Bank of Augusta vs. Earle, 13 Pet. (U. S.) 519 

17, 43, 47, 54, 57, 61, 62, 134 

Bank of Columbia vs. Patterson, 7 Cranch. (U. 

S.)299 276 



TABLE OF CASES 487 

Bank of Hindustan vs. China, etc. (Higg's Case) 

2 Hemm. & M. 666 400, 406 

Bank of Pennsylvania vs. Commonwealth, 7 Har- 
ris, (Pa.) 144 134, 150 

Bank of the United States vs. De Neaux, 5 Cranch. 

(U.S.) 61 40 

Bank of Utica vs. Smally, 2 Carr. (N. Y.) 770. . . 241 

Banker vs. Mechanics Ins. Co., 3 Wend. (N. Y.) 

97 • 137 

Barnes vs. Arnold, 51 N. Y. Supp. 1109 456 

Barnes vs. Brown, 80 N. Y. 535 439 

Barr vs. N. Y., L. E. & W. R.R. Co., 96 N. Y. 

450 282, 349, 377, 381 

Barr vs. Poole, 12 N. Y. 495 61 

Barry vs. Merchants Ex. Co., i Sandf. (N. Y.) 

Ch. 280 78 

Barstow vs. Savage Mining Co., 64 Cal. 388 198 

Bartholomew vs. Derby Rubber Co., 69 Conn. 

521 86 

Bauer vs. Samson Lodge, etc., 102 Ind. 262. . . . 181 

Bayliss vs. Orne, i Freem. (Miss.) 161 372 

Beach vs. Stauffer, 84 Mo. App. 395 264 

Beardsley vs. Johnson, 121 N. Y. 224 255 

Beatty vs. Marine Ins. Co., 2 Johns. (N. Y.) 109. 76 

Beekman vs. Saratoga, etc., R.R. Co., 3 Paige 

(N.Y.)4S 462 



488 TABLE OF CASES 

Bennett Ex parte, i8 Beavan 339 311 

Berry vs. Broach, 65 Miss. 450 249 

Bidden vs. Bayard, 13 Pa. St. 150. 198 

Bishop vs. Brainard, 28 Conn. 290 56, 79, 407 

Black vs. Delaware & Raritan Canal Co., 22 N. J. 

Eq. 231 406,407 

Black vs. Delaware & Raritan Canal Co., 9 C. E. 

Gr. (N.J.) 455 153,408 

Blatchford vs. Ross, 5 Abb. (N. Y.) Pr. n. s. 434; 

s. c. 54 Barb. (N. Y.) 42 408, 409, 419 

Bloxom vs. Met. Ry. Co. L. R. 3 Ch. App. 337 . . 348 

Board of Comm'rs of Tippecanoe County vs. La- 
fayette, 50 Ind. 85 390 

Boardman vs. Lake Shore Ry. Co., 84 N. Y. 157 

345, 419 

Boaz vs. Sterlingworth Ry. Co., 68 App. Div. 

(N.Y.) 1 382 

Bonaparte vs. Baltimore, etc., Co., 75 Md. 310. . . 148 

Booker, Ex parte, 18 Ark. 338 344 

Booth vs. Robinson, 55 Md. 419 346 

Bostwick vs. Chapman, 60 Conn. 553 430 

Bosworth vs. Allen, 168 N. Y. 157 300 

Boyington vs. Van Etten, 62 Ark. 63 56 

Bradley vs. Railroad Co., 21 Conn. 294 152 

Braughton vs. Manchester, etc.. Waterworks, 3 

Bam. & Aid. i 137 



TABLE OF CASES 489 

Brennan vs. Weatherford, 53 Tex. 336 152 

Brewer vs. Boston Theater, 104 Mass. 395 283, 380 

Briggs vs, Spaulding, 141 U. S. 132 278 

Brinkerhoff vs. Bostwick, 88 N. Y. 52; 99 N. Y. 

185 .345, 378, 388, 390 

Broadway Bank vs. Mcllrath, 13 N. J. Eq. 29.. . 189 

Brown vs. Mountain Silver Mines, 55 Fed. Rep. 

7 56 

Brown vs. Pacific Mail S.S. Co., 5 Blatchf. (U. S.) 

525 220 

Buffalo L. T. & S. D. Co. vs. Medina Gas Co., 162 

N. Y. 67 29, 358, 380 

Burden vs. Burden, 8 App. Div. (N. Y.) 160. 

163, 167, 168 

Burke Land Co. vs. Wells, Fargo & Co., 7 Idaho 

42 80 

Burr vs. Wilcox's Ex'rs, 22 N. Y. 551 188, 190 

Burrall vs. Bushwick R.R. Co., 75 N. Y. 211 184 

Buton vs. Hoffman, 61 Wis. 20; s. c. 50 Am. Rep. 

131 31 

Canada Pacific Ry. Co. vs. W. U. Tel. Co., 17 Can. 

Sup. Ct. 151 60 

Carpenter vs. Danforth, 52 Barb. (N. Y.) 581 .. . 306 

Carter vs. Burr, 46 N. J. L. 134; 47 Id. 594 364 

Central R.R. Co. vs. Georgia, 92 U. S. 665 404 

Chable vs. Nicaragua Canal Construction Co., 59 

Fed. Rep. 846 317, 323 



490 TABLE OF CASES 

Chaffee vs. Fourth Nat. Bank of N. Y., 71 Me. 

514 42 

Chapman vs. Missouri, etc., R.R., 6 Ohio St. 119. 408 

Charitable Corp., The, vs. Sutton, 2 Atky. 400. 

302, 355, 393 

Charlebois vs. Delap, 26 Can. Sup. Ct. 221 139 

Charlton vs. New Castle, etc., Ry. Co., 5 Jur. n. s. 

1096 , 408 

Chester Glass Co. vs. Dewey, 16 Mass. 94. .... . 191, 237 

Chestnut Hill, etc.. Turnpike Co. vs. Rutter, 4 

Serg. & R. (Pa.) 6 108, 111 

Chicago, etc., R.R. Co. vs. Union Pacific Ry. Co., 

47 Fed. Rep. 15 84,369 

Christian Union vs. Yount, loi U. S. 352 53 

Cincinnati Union, etc., Ry. Co. vs. Feam, 28 Ind. 

502 189 

City of Aurora vs. West, 9 Ind. 74 374 

City of Brooklyn, Matter of, 87 Hun. (N. Y.) 54. . 462 

City of Memphis vs. Hernando Ins. Co., 65 Tenn. 

527 (6 Baxter) 150 

City of Spokane vs. Amsterdanach, 22 Wash. 172 ; 

60 Pac. Rep. 141 264 

Clearwater vs. Meredith, i Wall. (U. S.) 25 140 

400, 403, 407, 409 

Clinch vs. Financial Corporation, L. R. 4 Ch. App. 

117. 406,407,410,412 

Cockbum vs. Union Bank of Louisiana, 13 La. 

Ann. 289 316, 320 



TABLE OF CASES 491 

Combes vs. Keyes, 89 Wis. 296 42 

Commissioners of Indian Fisheries vs. Holyoke 

Water Power Co., 104 Mass. 446-451 143, 144 

Comm'rs of Tippecanoe County vs. Reynolds, 44 

Ind. 509 306 

Commonwealth vs. Erie & N. E. Ry. Co., 27 Pa. 

St. 351 68,69 

Commonwealth vs. Morrison, 6 Weekly No. of 

Cases (Pa.) 346 265 

Commonwealth vs. St. Patrick's Co., 2 Binn. (Pa.) 

441 291 

Commonwealth vs. Turner, i Cush. (Mass.) 493. . . 179 

Commonwealth vs. Worcester, 3 Pick. (Mass.) 

462 162,319 

Commonwealth ex rel. Detwiler vs. Common- 
wealth, 131 Pa. St. 614 241,254 

Commonwealth ex rel. Seller vs. Phoenix Iron Co., 

105 Pa. St. Ill 316 

Cook vs. Hager, 8 Colo. 386 46 

Cooper Mfg Co. vs. Ferguson, 113 U. S., 727 46 

Coosaw Mining Co. vs. South Carolina, 144 U. S. 

550 387 

Corbett vs. Woodward, 5 Sawy. (U. S.) 403 301 

Corey vs. Wadsworth, 118 Ala. 488 25 

Cormick vs. Richards, 3 Lea (Tenn.) i 197 

Cousens vs. Lovejoy, 81 Me. 467 58 

Covington vs. Bowlers Ex'rs, 9 Bush. (Ky.) 570. . 345 



492 TABLE OF CASES 

Covington vs. Covington, etc., Bridge Co., lo 

Bush (Ky.) 69. 250 

Cowell vs. Spring Co,, 100 U. S. 55 .53, 61, 62 

Craig vs. Church, 6 Week No. of Cas. (Pa.) 421 . . 265 

Craig vs. First Presb. Church, 88 Pa. St. 42 220 

Craig Silver Co. vs. Smith, 163 Mass. 262, 265. . 230 

Crease vs. Babcock, 23 Pick. (Mass.) 234 120 

Cumberland Coal Co. vs. Sharman, 30 Barb. (N. 

Y.)553 299 

Cumberland Coal & Iron Co. vs. Parish, 42 Md. 

598-605 303 

Cummins vs. Webster, 43 Me. 192 176, 180 

Curtiff vs. Manchester & B. C. Co., 12 Eng. Ch. 

131 149,155 

Daly vs. National Life Ins. Co., 64 Ind. i 57 

Dana vs. Bank of U. S., 5 Watts & S. (Pa.) 243 . . 136 

Daniemeyer vs. Coleman, 11 Fed. Rep. 99 345 

Dartmouth College vs. Woodward, 4 Wheat. (U. 

S.) 636 12, 19, 76, 134, 142, 150, 425, 426, 457 

Dater vs. Tray Turnpike & R.R. Co., 2 Hill (N. 

Y.)632 109 

Davidson vs. New Orleans, 96 U. S. 104 461, 463 

Davis vs. Commercial Publishing Co., of Sidney 

I St. Rep. (N. S. W.) 37 392 

Davoue vs. Fanning, 2 Johns. (N. Y.) Ch., 252. . 289 

Deaderick vs. Wilson, 8 Baxt. (Tenn.) 108 306 



TABLE OF CASES 493 

De Brunaff vs. McClure Tissot Co., 82 N. Y. Supp. 

38 326 

Debs, In re. 158 U. S. 577 387 

De Neufaille vs. N. Y. & N. R.R. Co., 81 Fed. 

Rep. 10 . 362 

Denton vs. Jackson, 2 Johns. (N. Y.) Ch. 320. . . 23 

Denver & Rio Grand Ry. vs. Harris, 122 U. S. 

597 106 

Desford vs. Walbridge, 15 N. Y. 374 112 

Desmoines Gas Co. vs. West, 50 Iowa, 16-25. • • • 26 

Dickinson vs. Consolidated Traction Co., 114 Fed. 

Rep. 232 447 

Diligent Fire Ins. Co. vs. Commonwealth, 75 Pa. 

St., 291 70 

Dilloway vs. Boston Gas Light Co., 174 Mass. 

80 378 

Distilling Co. vs. People, 156 111. 448 444 

Distilling Co. vs. People, 161 111. loi 146 

Dobson vs. Pearce, 12 N. Y. 156 112 

Dodge vs. Woolsey, 59 U. S. 331 .370, 371, 373, 377, 388 

Doherty vs. Mercantile Trust Co., 184 Mass. 590. 377 

Doncomb vs. N. Y. H. & N. R.R. Co., 84 N. Y. 

190; 88N. Y. 1 419 

Doughdrill vs. Alabama L. I. T. Co., 31 Ala. 91 . . 146 

Douglass vs. Pacific Mail S.S. Co., 4 Cal. 304.. ... 24 

Douglass VvS. Phoenix Ins, Qo., 138 N. Yr 209. .. .42, 44 



494 TABLE OF CASES 

Dow vs. Clark, 7 Gray (Mass.) 198 161 

Drake vs. Hudson River R.R. Co., 7 Barb. (N. Y.) 

508 157 

Drake vs. N. Y. Suburban Water Co., 36 App. 

Div. (N. Y.) 275 294 

Ducat vs. Chicago, 10 Wall. (U. S.) 410 58 

Dudley vs. Kentucky High School, 9 Bush. (Ky.) 

578 .232,250 

Duke vs. Greenfield, 19 South. Rep. 172 55 

Duke vs. Markham, 105 N. C. 131 262 

Dunham vs. Trustees of Village of Rochester, 5 

Caw. (N. Y.)462 164,170,319 

Dunne vs. English, L. R. 18 Eq. 524 266 

East Anglian Ry. Co. vs. Eastern Counties Ry. 

Co., II C. B.o. s. 775 72 

East Birmingham Land Co. vs. Dennis, 85 Ala. 

565 • •.. 199 

East St. Louis Connecting Ry. Co. vs. Jarvis, 92 

Fed. Rep. 735 353 

Eastern Trust, etc., Co. vs. Willis, 6 App. Cas. 

Dist. of Col. 375 (Tucker, 1895) 61 

Edgar vs. Sloan, 23 Can. Sup. Ct. Rep. 644. . . . 308 

Edwards vs. Union Bank of Florida, i Fla. 134. . 107 

EUworth Woolen Mfg. Co. vs. Faunce, 79 Me. 

440 220 

Empire Assurance Corporation, In re. L. R. 4 Eq. 

Cas. 341 406, 408, 410, 414 



TABLE OF CASES 495 

Erie, etc., R.R. Co. vs. Carey, 26 Pa. St. 287 123 

Erwin vs. Oregon Ry. & Nav. Co., 20 Fed. Rep. 

577 375 

Eschwiller vs. Stovel, 78 Wis. 316 380 

Evanston Elec. 111. Co. vs. Kocharsherger, 175 

111. 26 146 

Everhart vs. Searl, 71 Pa. St. 751 . 266 

Exchange Bank of Macon vs. Macon C. Co., 95 Ga. 

5 ' 30 

Exchange Bank vs. Macon Const. Co., 97 Ga. i . . 417 

Ex parte Bennett, 18 Beavan 339 311 

Ex parte Booker, 18 Ark. 338 344 

Ex parte Holmes, 5 Cow. (N. Y.) 435 237 

Ex parte Larking vs. Imp. Land Co. of Marseilles, 

L. R. 4 Ch. Div., 566; s. c. 46 L. T. 235 301 

Ex parte Rogers, 7 Cow. (N. Y.) 526, 530 n 220 

Ex parte Schallenberger, 6 Otto (U. S.) 369 41 

Ex parte Willcocks, 7 Cow. (N. Y.) 402 220, 237 

Fales vs. Chicago, etc., Ry., 32 Fed. Rep., 673 . . 43 

Farmers Loan & Trust Co. vs. N. Y. & N. R. Co., 

150 N. Y. 410 29, 362, 386 

Farmers Loan & Trust Co. vs. San Diego St. Car 

Co., 45 Fed. Rep. 518 281 

Farmers Loan & Trust Co. vs. Trustees of the N. 

Y. & N. R. Ry. Co., 150 N. Y. 410 304 

Faulds vs. Yates, 57 111. 416 248 



496 TABLE OF CASES 

Field vs. Crawford, 6 Gray (Mass.) ii6 161 

First Nat. Bank of Fort Scott vs. Drake, 29 Kan. 

311 347 

Fisher vs. Bishop, 108 N. Y. 205 307 

Fishkill Savings Bank vs. National Bank, 80 N. 

Y. 162. 277,278 

Fitch, Matter of, 160 N. Y. 87 316 

Fitzgerald vs. Fitzgerald & Mallard Construction 

Co., 41 Nev. 375 341 

Fitzgerald vs. Missouri Pac. Ry. Co., 45 Fed. Rep. 

812 29,43 

Flanagan vs. Great Western Ry. Co., 19 L. T. (N. 

S.)345 361 

Flanagan vs. R.R., etc., 6 L. R. 7 Eq. 116 266 

Flint vs. Pierce, 99 Mass. 68 179 

Flynn vs. Brooklyn City R.R. Co., 158 N. Y. 507 . 381 

Forester vs. Boston & Montana, etc., Co., 21 Mon- 
tana, 544 86 

Foss vs. Harbottle, 2 Hare 461 371, 388, 391, 393 

Fowle vs. Common Council of Alexandria, 3 Pet. 

(U.S.) 409 108 

Franklin Trust Co. vs. Rutherford Boiling Spa Co., 

57N.J.Eq. 42 220 

Freeman vs. Mechias Water Power Co., 38 Me. 

345 233 

Frothingham vs. Broadway & Seventh Ave. Ry. 

9 Civ. Pro. (N. Y.) 304 . 348 



TABLE OF CASES 497 

Fulton vs. Whitney, 66 N. Y. 548 266 

Gamble vs. Queens County Water Co., 123 N. Y. 

92 294, 359, 360, 362, 386 

Gardner vs. Hamilton Ins. Co., 33 N. Y. 421 . . . . 

408, 409, 418 

Gashwither vs. Willis, 7,?> Cal. 11 263 

General Exchange Bank vs. Horner, L. R. 9 Eq. 

Cas. 480 390 

Georgia vs. Brailsford, 2 Dall. (U. S.) 402 387 

Gibson vs. Jeyes, 6 Ves. 266 307 

Griffith vs. Jewett, 15 Weekly Law Bulletin (Ohio) 

419 433,435 

Gifford vs. Livingston, 2 Denia (N. Y.) 380 295 

Gilbert's Case, L. R. 5 Ch. App. 559 309 

Gilbert vs. Finch, 173 N. Y. 455 357 

Gilbert vs. Manchester, 55 N. H. 298 346 

Gilbert vs. Manchester Iron Mfg. Co., 11 Wend. 

(N. Y.) 628 . 241 

Gilbert vs. Bower, 23 Fed. Rep. 625 306 

Glasser vs. Priest, 29 Mo. App. i 54 

Gluckstein vs. Barnes, L. R. App. Cas. (1900) 

240 389 

Godden vs. Kimmell, 99 U. S. 201 347 

Goodwin vs. Botcan Lumber Co., 109 La. 1050 . . . 447 

Gordon vs. Preston, i Watts (Pa.) 385 99 

Graham vs. Boston, etc., R.R. Co., 118 U. S. 161 . 49 



498 TABLE OF CASES 

Granger vs. Kamper, 73 Ala. 343 83 

Zabriskie vs. Hackensack, etc., R.R. Co., 3 C. E. 

Gr. (N.J.) 178 153 

Grangers' Life, etc., Ins. Co. vs. Kamper, 73 Ala. 

325 125,204 

Gray vs. Lewis, 29 L. T. (n. s.) 12; L. R. 8 Ch. 

103s 392 

Great Luxembourg Ry. vs. Maguay, 25 Beavan 

586 301, 311, 360 

Green vs. Board of Trade of Chicago, 174 111. 585 . 181 

Green vs. Briggs, i Curt. (U. S.) 311 461 

Greene vs. Seymour, 3 Sandp. (N. Y.) Ch. 285. . 221 

Green Bay vs. Union Steamboat Co., 107 U. S. 

98 71 

Greenwood vs. Freight, etc., 105 U. S. 13 144 

Gregory vs. Patchett, 33 Beavan 595 221, 284 

Guild vs. Parker, 14 Vr. (N. J.) 430 299 

Haarstick vs. Fox, 9 Utah no; App'd 156 U. S. 

674 305 

Hadencamp vs. Second Ave. Ry., i Sweeney (N. 

Y.)49o 180 

Hagar vs. Reclamation, etc., in U. S. 708 460 

Hager vs. Cleveland, 6 Md. 476 128 

Hall vs. Connell, 3 Young & Coll. 707 323 

Hall vs. Union M. F. Ins. Co., 32 N. H. 299 346 

Hallenborg vs. Greene, 66 App. Div. (N. Y.) 590. 385 



TABLE OF CASES 499 

Hallinger vs. Davis, 146 U. S. 320 463 

Hamilton vs. Clarion, etc., R. Co., 144 Pa. St. 34. 418 

Hamilton Mut. Ins. Co. vs. Hobart, 2 Gray (Mass.) 

543 408 

Hancock vs. Holbrook, 40 La. Ann. 53 . 250 

Hannah vs. Hannah, 68 N. Y. 610 192 

Harington vs. Workingmen's Benev. Ass'n, 76 Ga. 

340. 180 

Harris vs. Stevens, 31 Vt. 79 180 

Hart vs. Ogdensburgh, etc., Ry. Co., 89 Hun. (N. 

Y.)3i6 293 

Hartford, etc., R.R. Co. vs. Creswell, 5 Hill (N. 

Y.)383 410 

Hartt vs. Harvey, 32 Barb. (N. Y.) 55 218 

Havemeyer vs. Havemeyer, 43 N. Y. Superior 

506; 86N. Y. 618 430 

Hawes vs. Oakland, 14 Otto (U. S.) 450.282, 378, 380, 432 

Hawley vs. Brumigan, 33 Cal. 394 189 

Hay den vs. Middlesex Turnpike Corp., 10 Mass. 

397; 6 Am, Dec. 143 ; 276 

Hazard vs. Durant, 11 R. I. 195 360, 378 

Head & Armory vs. Providence Ins. Co., 2 Cranch 

(U.S.) 150 470 

Health Union vs. People ex rel. Maloney, 166 111. 

171 153 

Heath vs. Erie R.R. Co., 8 Blatchf. (U. S.) 347 . . 377 



500 TABLE OF CASES 

Hern vs. Nichols, i Salk. 289 193 

Hersey vs. Veazie, 24 Me. 9 372 

Hickens vs. Congreve, 4 Russ. 562 372 

Hill vs. Gould, 29 Mo. 107 283 

Hoagland vs. Bell, 36 Barb. (N. Y.) 57 241 

Hodges vs. N. E. Screw Co., i R. I. 312. 372 

Hodgkinson vs. Nat. L. S. Ins. Co., 26 BeaA^an 

473 283 

Holbrook vs. Ford, 153 111. 633; s. c. 46 Am. St. 

Repts. 917 42 

Holland vs. Heyman, 60 Ga. 174 472 

Hallenburg vs. Greene, 66 App. Div. (N. Y.) 590. 59 

Holmes, Ex parte, 5 Cow. (N. Y.) 435 237 

Holmes, and others, vs. Holmes, etc.. Mfg. Co., 37 

Conn. 293 79 

Holmes, Booth & Hay den Co. vs. Willard, 125 N. 

Y. 75 354 

Home Friendly Society vs. Tyler, 9 Pa. C. C. 617 . 418 

Home Ins. Co. vs. City of Augusta, 50 Ga. 530. . 47 

Hood vs. N. Y., etc., R.R. Co., 22 Conn. 16; Id. 

502 74 

Hooker vs. N. H. «& N. Co 79 

Hoppin vs. Bufferin, 9 R. I. 513 241 

Hospital vs. Sutton, 5 Cake, 253 13, 15 

Hoyle vs. Plattsburg R.R. Co., 54 N. Y. 314 299 



TABLE OF CASES 501 

Hubbell vs. Drexel, ii Fed. Rep. 115 187 

Hughes vs. Parker, 20 N. H. 58, 71 251, 252, 255 

Hunt vs. Bulloch, 23 111. 320 153 

Hurtado vs. People of California, no U. S. 535. . 460 

Huyler vs. Cragin Cattle Co., 40 N. J. Eq. 392 . .316, 320 

Importers Merc. Credit Co. vs. Coleman, L. R. 6 

H. of L. 189 266, 302 

In re Burton and the Saddkrs' Co., 31 L. J. Q. B. 

62 328 

In re Cameron vs. Coalbrook, etc., Ry. Co., Ex 
parte Bennett, 18 Beavan 339; App'd 24 L. 
J. Ch. 130 300 

In re Cook vs. Youghal Ry. Co., L. R. 4 Ch. App. 

748 99 

In re Debs, 158 U. S. 577 . 387 

In re Empire Assurance Corporation, L. R. 4 Eq. 

Cas. 341 406,408,410,414 

In re Long Island R.R. Co., 19 Wend. (N. Y.) 37 . 174 

In re Pierson, 44 App. Div. (N. Y.) 215 316, 329 

In re Tuttle vs. Iron Nat. Bank of Plattsburgh, 

170N. Y. 9 318 

Insurance Co. vs. Cross, 18 Wis. 119 61 

Ireland vs. Globe Milling, etc., Co., 19 R. I. 180. . 42 

Irrigation Co. vs. Canal Co., 16 Utah 246 151 

Jackson vs. Inhabitants of Hampden, 20 Me. 37 . . 249 

Jacobs vs. Diamond Soda Water, etc., Co., 94 

App. Div. (N. Y.) 366 419 



502 TABLE OF CASES 

Jacobus vs. American Mineral Water Machine Co., 
38 Misc. (N. Y.) 371; 77 N. Y. Supp. 898. 

361,384 

Jemmison vs. Citizens Bank, 122 N. Y. 135 277 

Johnson vs. Albany & Susquehanna Ry. Co., 40 

How. (N. Y.) 196 190 

Jones vs. Guaranty & Indemnity Co., loi U. S. 

622 95 

Jones vs. Milton Turnpike Co., 7 Ind. 547 247 

Kean vs. Johnson, i Stock. (N. J.) 401 153, 450 

Kelley vs. Mayor of Brooklyn, 4 Hill (N. Y.) 265 . 137 

Kent vs. Quicksilver Mining Co., 78 N. Y. 159. . 

160, 167, 177, 180, 294, 348 

Keokuk, etc., R.R. Co. vs. Missouri, 152 U. S. 

301 404 

Kesson vs. Aberdeen, Wright & Cooper's Incor- 
poration, 36 Scott Law Rep. 38 81 

King vs. Co-operate Co., of New Castle, 7 T. R. 

548 174 

King vs. Poole, Cas. temp. Hardw. 23 251 

King vs. Theodrick, 8 East 543 254 

King vs. The Masters & Wardens of the Merchant 

Tailors Co., 2 Bam. & Ad. 115 325 

King vs. Toppendor, 3 East 186 174 

King vs. Trevenen, 2 Bam. & Aid., 339 245 

Kitchen vs. Cape Girardeau & S. L. R. Co., 59 

Mo. 514.. 276 



TABLE OF CASES 503 

Kitchen vs. St. Louis Ry. Co., 69 Mo. 224 345 

Knaston vs. Mayor, etc., of Shrewsbury, 2 Str. 

1051 254 

Knox vs. Eden Musee Am. Co., 25 N. Y. Supp., 

168; 148N. Y. 441 172,193,196,199 

Koehler vs. Black Falls Iron Co., 2 Black (U. S.) 

715 302 

La Fayette Ins. Co. vs. French, 18 Haw. (U. S.) 

404 43 

Lagrone vs. Timmerman, 46 So. Car. 372 150 

Lamm vs. Port Deposit Co., 49 Md. 233 277 

Land Grant Ry. Co. vs. Comm'rs of Coffee Co., 6 

Kan. 245; lb. 253 48,57,290 

Lane vs. Brainard, 30 Conn. 565 79 

Lange vs. Burke, 69 Ark. 85 29, 30 

Lathrop vs. Bank, 8 Dana (Ky.) 114 61 

Latimer vs. Richmond R.R. Co., 39 So. Car. 44. .379, 380 

Lauman vs. Lebanon Valley R.R. Co., 30 Pa. St. 

42 402,413 

Layre vs. Louisville, etc., 20 Duval (Ky.) 143 . . . 181 

Leathers vs. Janney, 41 Lawyers' Rep. Anno. 

1120 26 

Lees vs. Huttell, 2 Myl. & K. 819 266 

Legendre vs. New Orleans Brewing Ass'n, 45 La. 

Ann. 669 317, 327 

Leslie vs. Lorillard, no N. Y. 519 375 



504 TABLE OF CASES 

Lewis vs. Brainard, 53 Vt. 510 319 

Lincoln Shoe Mfg. Co. vs. Sheldon, 44 Neb. 279. . 126 

Liverpool Ins. Co. vs. Man, 10 Wall. (U. S.) 566. . 61 

Livesey vs. Omaha Hotel Co., 5 Neb. 50 149 

Livingston vs. Lynch, 4 Johns. (N. Y.) Ch. 373. . 410 

Lloyd vs. The E. & N. A. Ry. Co., 18 N. B. (2 P. 

&B.) 194 . 138 

Lorillard vs. Clyde, 86 N. Y. 384 266 

Looker vs. Maynard, 179 U. S. 46 456 

Lowther vs. Lowther, 13 Ves. 95 266 

Lyman vs. White River Bridge Co., 2 Aikins (Vt.) 

255 Ill 

McAuley vs. Columbus, etc., R.R. Co., 83 111. 348 . 407 

McClelland vs. N. S. R.R. Co., no N. Y. 469. . . . 100 

McCliire vs. Law, 161 N. Y. 78 357 

McCray vs. Junction R.R. Co., 9 Ind. 358 402 

McDaniels vs. Flowers Brook Mfg. Co., 22 Vt. 

274 264,265 

McDermott vs. Board of Police, 5 Abb. Pr. (N. Y.) 

422 176,177 

McDonough vs. Murdoch, 15 How. (U. S.) 367 ... 58 

McDougal vs. Gardiner, L. R. i Ch. Div. 13 393 

McGourkey vs. Toledo, etc., R.R. Co., 146 U. S. 

536; 36 L. R. A. 80 305, 357 

Mclntyre vs. Ajax Mining Co., 17 Utah 213 ... . .305, 306 



TABLE OF CASES 505 

McLarren vs. Pennington, i Paige (N. Y.) 107 . . . 121 

McLeary vs. Erie Teleg. & Telep. Co., 76 N. Y. 

Supp. 712 386 

McMasters vs. Reed's Ex'rs, i Grants (Pa.) Cases, 

47 134,136,138 

McMahon vs. Morrison, 16 Ind. 172 402, 408, 409 

McNeil vs. Tenth Nat. Bank, 46 N. Y. 325 194 

MacDougal vs. Gardner, L. R. i Ch. Div. 13 432 

MacNaughton vs. Osgood, 41 Hun. (N. Y.) 109. . 167 

Main vs. North Eastern R.R. Co., 12 Rich. (S. C.) 

Law. 82 109 

Malloney vs. Hanaur Oil Works, 86 Tenn. 598. . . 441 

March vs. Eastern R.R. Co., 40 N. H. 548 377 

Marsh vs. Whitmore, 21 Wall. (U. S.) 178 266 

Marshall vs. Baltimore, etc., R.R. Co., 57 U. S. 

(16 How.) 314 23 

Marvin vs. Brooks, 84 N. Y. 71 364 

Maryland Savings Inst. vs. Schroeder, 8 Gill & J. 

(Md.) 93 346 

Mason vs. Harris, L. R. 11 Ch. Div. 97 382 

Matly vs. Sampson, 64 App. Div. (N. Y.) i 294 

Matter of Albany Street, 11 Wend. (N. Y.) 149. . 463 

Matter of City of Brooklyn, 87 Hun. (N. Y.) 54. . 462 

Matter of Fitch, 160 N. Y. 87 316, 329 

Matter of Reciprocity Bank, 22 N, Y. 9 455 



506 • TABLE OF CASES 

Matter of Sage, 70 N. Y. 220 318 

Matter of Steinway, 31 App. Div. 70; App'd 159 

N. Y. 250 315, 316, 326, 327 

Matthews vs. Associated Press, 136N.Y.333.... 169 

Mayer vs. Staten Island Ry. Co., 7 St. Rep. (N. 

Y.) 245 360 

Mayor, etc., vs. Baltimore, etc., 21 Md. 50 78 

Mead vs. N. Y. H. & N. R.R. Co., 45 Conn. 222 

400, 407 

Meader vs. Norton, 11 Wall. (U. S.) 442 347 

Mechanics Bank vs. N. Y. & N. H. R.R. Co., 13 

N. Y. 599 198,205 

Mechanics & Farmers Bank vs. Smith, 19 Johns. 

(N.Y.) 115 175 

Meeker vs. Winthrop Iron Co., 17 Fed. Rep. 48. .267, 301 

Meffert vs. State Board, 72 Pac. Rep. 247 465 

Mellen vs. Whipple, i Gray (Mass.) 317 . 161 

Menier vs. Hooper's Telegraph Works, L. R. 9 Ch. 

350 360, 390, 393, 409, 419 

Meredith vs. New Jersey Zinc & Iron Co., it 9 N J 

Eq. 257 155 

Merritt vs. American Steel B. Co., 79 Fed. Rep. 

228 189,192 

Michigan Bath vs. Caton, 37 Mich. 109 109 

Miller vs. Ewer, 27 Me. 509 ... 233 

Miller and the Mississippi R.R. Co. vs. Lancaster, 

5 Coldw. (Tenn.) 514 , 403 



TABLE OF CASES 507 

Mills vs. Central R.R. Co., 14 Stew. (N. J.) Eq. i. 153 

Miner vs. Belle Isle Ice Co., 17 L. R. A. (Mich.) 

417... 380 

Miners Bank of Dubuque vs. United States, i 

Greene (Iowa) 553, 561 121,473 

Minnesota vs. Northern Securities, 184 U. S. 199 . . 405 

Mississippi, etc., R.R. Co. vs. Cross, 20 Ark. 443 . . 146 

Mississippi Valley Ry. Co. vs. Adams, 180 U. S. i. 405 

Mitchell vs. Vermont Copper Mining Co., 47 How. 

(N. Y.) 218; 67 N. Y. 280 170 

Monroe Dairy Ass'n vs. Webb, 57 N. Y. Supp. 

572 : 40 App. Div. (N. Y.) 49 170 

Morley vs. Alston, i Phil. Ch. 790 375, 393 

Morris Run Coal Co. vs. Barclay Coal Co., 69 Pa. 

St. 173 325 

Morse vs. Royal, 12 Ves. 355 345 

Moss vs. Oakley, 2 Hill (N. Y.) 265 137 

Mott vs.. Hamington, 12 Vt. 199 266 

Mott vs. Hicks, i Cow. (N. Y.) 513 137 

Mowrey vs. Indianapolis, etc., R.R. Co., 4 Biss. 

(U.S.) 78,85 403,408 

Mutual Building Fund vs. Bosseiux, 3 Fed. Rep. 

817 301 

N. F. Ins. Co. vs. Moe, 58 N. H. 48 255 

Nash vs. Hall, 11 Misc. (N. Y.) 468; 90 Hun. (N. 

Y.) 3 54 .,..,,,.,. 358, 383, 384 



508 TABLE OF CASES 

National Bank vs. Matthews, 98 U. S. 621 ...... . 99 

Neall vs. Hill, 16 Cal. 145 79 

Nelson vs. Anglo-American Land Mortgage Agen- 
cy Co., L. R. i Ch. 130 321 

Nelson vs. Owen, 113 Ala. 372 189, 197 

New Jersey Steamboat Co. vs. Brockett, 121 U. S. 

637 107 

New Orleans, Jackson, etc., R. Co. vs. Harris, 5 

Cushman (Miss.), 517 (27 Miss.) 148 

Newport, etc.. Bridge Co. vs. Waverly, 78 Ky., 

523 49 

New Simbreco P. Co. vs. Eslager, L. R. 5 Ch. Div. 

73 • 266 

New York Firemen's Ins. Co. vs. Ely, 2 Cow. (N. 

Y.) 699 136 

New York Firemen's Ins. Co. vs. Sturges, 2 Cow. 

(N. Y.)67s 136 

Niles vs. N. Y, C. & H. R. R.R. Co., 176 N. Y. 

119 381 

Norrice vs. Aylmer, 44 L. J. Ch., 214; 45 L. J. Ch., 

614 , 185 

Norris vs. Staps, i Hobert 211 166, 178 

Northwest Electric Co. vs. Walsh, 29 Can. Supr. 

Ct. 33 162 

Overstreet vs. Citizens Bank, 72 Pac. Rep. 379. 418, 448 
Packer vs. Sunbury, etc., R.R. Co., 7 Harris (Pa.) 



211 



134 



TABLE OF CASES 509 

Parish vs. New York Produce Exchange, 60 App. 

Div. (N. Y.) 16; 169 N. Y. 34 167 

Parker vs. McKenna, L. R. 10 Ch. App. 96 390 

Paschell vs. Whitsett, 11 Ala. 472 25 

Paul vs. Virginia, 75 U. S. (8 Wall.) 168 49, 58 

Paxton vs. Sweet, i Green (N. J.) 196 165 

Peabody vs. Flint, 6 Allen (Mass.) 52 307 

Pearsall vs. Great Northern Ry., 161 U. S. 673 . . 133, 457 

Pendery vs. Carleton, 87 Fed. Rep. 4 267 

Pennsylvania College Case, 13 Wall. (U. S.) 190. 141, 403 

People vs. American Bell Telephone Co., 117 

N. Y. 241 28 

People vs. Ballard, 134 N. Y. 269 

87, 90, 375, 419, 450, 470 

People vs. Cataract Bank, 5 Misc. (N. Y.) 14 323 

People vs. North River Sugar Refg. Co., 121 N. Y. 

582 412,441 

People vs. O'Brien, 45 Hun. (N. Y.) 519; iii 

N. Y. 1 455,456 

People vs. Runkle, 9 Johns. (N. Y.) 147 251 

People's Bank vs. Krutz, 99 Pa. St. 34 194 

People ex rel. Allen vs. Hill, 16 Cal. 113 263 

People ex rel. Att'y Gen'l vs. Utica Ins. Co., 15 

Johns. (N. Y.) 357 71, 96, 136, 144 

People ex rel. Edison Electric Light Co. vs. Camp- 
bell, 138 N. Y. 543 58 



510 TABLE OF CASES 

People ex rel. Gray vs. Medical Soc. Ass'n Co., 24 

Barb. (N. Y.) 570 ". 173 

People ex rel. Henry vs. Cornell, 47 Barb. (N. Y.) 

329 s. c. 35 How. (N. Y.) Pr 322 

People ex rel. Loew vs. Batchellor, 22 N. Y. 128, 

224, 226, 228 

People ex rel. McElwee vs. Produce Exchange 

Trust Co., 53 App. Div. (N. Y.) 93 . 326 

People ex rel. Maloney vs. Pullman Palace Car Co., 

175 111. 125 ..81,153 

People ex rel. Muir vs. Throop, 12 Wend. (N. Y.) 

183 164, 181, 319, 320, 327 

People ex rel. Peabody vs. Chicago Gas Trust Co., 

130 111. 268 81 

People ex rel. Penn. R.R. Co. vs. Wemple, 138 

N. Y. 1 58 

People ex rel. Probert vs. Robinson, 64 Cal. 373 . 241 

People ex rel. Plugger vs. Township Board of 

Overysell, 11 Mich. 222 307 

People ex rel. Sturgis vs. Keese, 27 Hun. (N. Y.) 

483 456 

People ex rel. Wallace vs. Sterling B. C, etc., 82 

111.457 181 

People ex rel. Winchester vs. Coleman, 133 N. Y. 

279. 296 

People ex rel. Witherby vs. Supervisors of Essex, 

70N. Y. 222 462 

People's Mutual Ins. Co. vs. Westcott, 14 Gray 

(Mass.) 440 228 



TABLE OF CASES 511 

Perrene vs. Chesapeake, etc., Canal Co., 9 How. 

(U.S.) 172,184 134 

Phillips vs. Postal Telegraph Co., 130 No. Car. 

513 464 

Phoenix Ins. Co. vs. Commonwealth, 5 Bush (Ky.) 

68 61 

Phoenix Iron Co. vs. Commonwealth ex rel. Sellers, 

113 Pa. St. 563 319 

Philadelphia, etc., R.R. Co. vs. Quigley,'2i How. 

(U.S.) 202 106 

Phillips vs. Wickham, i Paige (N. Y.) 590 255 

Pierce vs. New Orleans Bldg. Co., 9 La. 397 263 

Pietch vs. Krause, 93 N. W. Rep., 9 191 

Piatt vs. New York & Boston R.R. Co., 26 Conn. 

' 567 79 

Plimpton vs. Bigelow, 93 N. Y. 592 43 

Plummer vs. Penobscot Lumbering Co., Ass'n 67 

Me. 363 70 

Pondir vs. N. Y., L. E. & W. R.R. Co., 72 Hun. 

(N. Y.) 384 362 

Port Royal R.R. Co. vs. Hammond, 58 Ga. 527 . . 47 

Postal Teleg. Cable Co. vs. Oregon Short Line Ry. 

Co., 23 Utah 474 49 

Poultry vs. Bachman, 31 Hun. (N. Y.) 49 180 

Powell vs. Northern Missouri R.R. Co., 42 Mo. 

67 406 

Presbyterian Assurance Fund vs. Allen, 106 Ind. 

593 181 



512 . TABLE OF CASES 

President and College of Physicians, London vs. 

Salmon, 2 Salk. 451 23 

President and College of Physicians, London vs. 

Talhois i Ld. Raym. 153 23 

Preston vs. Grand D. Co., 11 Sim. 327 283 

Pullman Palace Car Co. vs. Mo. Pac. Co., 115 

U. S. 587 32 

Queen vs. Arnaud, 9 Q. B. (Ad. & E. N. S.) 806. . 31 

Railroad Co. vs. Georgia, 98 U. S. 363 403 

Railroad Co. vs. Maine, etc., R.R. Co., 96 U. S. 

499 405 

Railroad Co. vs. Nicholas, 98 Ala. 92, 121 25 

Railway Co. vs. Allerton, 85 U. S. 233, 205, 208, 268, 270 

Ramsey vs. Gould, 57 Barb. (N. Y.) 398 349, 383 

Ranger vs. Champion Cotton Press Co., 51 Fed. 

Rep. 61 317 

Reciprocity Bank, Matter of, 22 N. Y. 9 455 

Re Debs, 158 U. S. 577 387 

Re The British Sugar Refining Co., Ex parte Fer- 
ris, L. J. 26Ch. 369 246 

Rex vs. Beeston, 3 T. R. 592 239 

Rex vs. Mayor, 2 Burr. 723-728 254 

Rex vs. Mayor, i Str. 385 254 

Rex vs. Varlo, i Cowper 248-250 245 

Reynolds vs. Comm'rs of Stark Co., 5 Ohio 204. . 95 



TABLE OF CASES . 513 

Richmond, etc., Const. Co. vs. Richmond, 68 Fed. 

Rep. 105 30 

Richmond, etc., R.R. Co. vs. City of Richmond, 

26 Gratt. (Va.) 83 82 

Riddle vs. Proprietors of the Locks and Canals of 

the Merrimac River, 7 Mass. 186 107, 111 

Riker vs. Sampson, 133 N. Y. 519 145 

Rivanna Navigation Co. vs. Dawsons, 3 Gratt. 

(Va) 19 82 

Robbins vs. Butler, 24 Ills. 387 363 

Robe vs. Dunlap, 6 Dick. (N. J.) 40; (50 N. J. 

Eq.) 299 

Robinson vs. Smith, 3 Paige (N. Y.) Ch. 22 372, 377 

Rockland Water Co. vs. Camden, etc., 80 Me. 

544 148 

Rogers, Ex parte, 7 Cow. (N. Y.) 526, 530 n. . . . 220 
Rogers vs. Jones, i Wend. (N. Y.) 238 171 

Root vs. Ore Creek & H. R.R. Co., 2 Foster 

(N. H.) 145 418 

Rosenfeld vs. Einstein, 46 N. J. L. 479 322 

Runyan vs. Lessees of Castor, 14 Pet. (U. S.) 

122 53,134 

Rural Homestead Co. vs. Wilds, 9 Dick. (N. J.) 

668, [54 N.J. Eq.] 299 

Russel vs. Wakefield, etc., Ry. Co., L. R. 20 Eq. 

474 299 

Russell vs. McLellan, 14 Pick. (Mass.) 63 372 



514 TABLE OF CASES 

Rust vs. United Waterworks Co., 70 Fed. Rep. 

129 56 

Rutherford Boiling Spa Co. vs. Franklin Trust 

Co., 58 N. J., Eq. 584 220 

Ryan vs. L. A. & N. W. Ry. Co., 21 Kan. 404. .354, 376 

Ryan vs. Vallandingham, 7 Ind. 416 57, 473 

Ryder vs. L. A. & N. W. Ry., 21 Kan. 365 292 

Sage, Matter of, 70 N. Y. 220 318 

St. James Church vs. Church of the Redeemer, 45 

Barb. (N. Y.) 356 364 

St. Louis, etc., R.R. Co. vs. Dolby, 19 111. 353 .. . 106 

Sage vs. Culver, 147 N. Y. 241 382 

Salomon vs. Laing, 12 Beav. 339. , 72 

Salt Co. vs. East Saginaw, 13 Wall. (U. S.) 373, 

378 141 

Salt Lake City vs. Hollister, 118 U. S. 256 107 

San Mateo County vs. Southern Pacific R.R. Co., 

13 Fed. Rep. 722 462 

Saranac & L. P. R.R. Co. vs. Arnold, 167 N. Y. 

368 29,359,384 

Savings Bank of Hannibal vs. Hunt, 72 Mo. 597 . . 177 

Savings Bank of New Haven vs. Davis, 8 Conn. 

191 249 

Sayers vs. Texas Land Co., 78 Tex. 247 ....... . 82 

Scadding vs. Lavant, 5 Eng. Law and Eq. 16. . , 225 

Schallenberger, Ex parte, 6 Otta. (U. S.) 369.. ... 41 



TABLE OF CASES 515 

Scoville vs. Thayer, 105 U. S. 143 205 

Sellers vs. Greers, 172 111. 549 222, 262 

Sewell vs. East Cape May Beach Co., 50 N. J. Eq. 

717 90 

Sharp vs. Mayor of New York, 40 Barb. (N. Y.) 

256 112 

Shaw vs. City of Covington, 194 U. S. 593 405 

Shaw vs. Spencer, 100 Mass. 382 198 

Shelmerdine vs. Welsh, 20 Pa. St. 199 430 

Shepaugh Voting Trust, 60 Conn. 553 430 

Shields vs. Ohio, 95 U. S. 324 403, 404 

Simon vs. Craft, 182 U. S. 427 465 

Sinking Fund Cases, 99 U. S. 700 144 

Skinner vs. Smith, 134 N. Y. 240 340, 474 

Silver Lake Bank vs. North, 4 Johns. (N. Y.) Ch. 

370 99 

Singer Mfg. Co. vs. Holdfodt, 86 111. 454 105 

Slaughter vs. Commonwealth, 13 Gratt. (Va.) 

767 58 

Smead vs. J. T. & C. R. Co., 11 Ind. 104 147 

Smith vs. Eureka Flour Mills Co., 6 Cal. i . .' 79 

Smith vs. Hard, 12 Mete. (Mass.) 371 372 

Smith vs. Morse, 2 Cal. 524 79 

Smith vs. Swormstedt, 16 How. (U. S.) 288 372 

Smith vs. Townsend, 109 Mass. 500 266 



516 TABLE OF CASES 

Smyrna, etc., S.S. Co. vs. Whildin, 4 Herr. (Del.) 

230 80 

Society, etc., vs. Commonwealth ex rel. Meyer, 52 

Pa. St. 125 126 

Southall vs. British Mut. Life Ins. Soc, L. R. 11 

Eq. 65 407 

Spering's Appeal, 71 Pa. St. 11 310 

Spring Valley Waterworks vs. Schottler, no 

U. S. 347 144 

Stace & Worths Case, L. R. 4 Ch. App. 682 n. . . . 205 

Stahn vs. Catawba Mills, 53 So. Car. 519 362, 379 

Stanhope's Case, L. R. i Ch. App. 161 349 

Starbuck vs. Mercantile Trust Co., 2 Smith's Cases 

1032 430 

State vs. Bailey, 16 Ind. 46; 79 Am. Dec. 406. . . 402 

State vs. Bank of Smyrna, 2 Houston (Del.) 99. . 105 

State vs. Board of Examiners, 34 Minn. 387. . . . 465 

State vs. Ferguson, 2 Vroom (N. J.) 107 228 

State vs. Hammond Packing Co., no La. 180. . 57 

State vs. Krebs, 64 N. C. 604 70 

State vs. Maine Central R.R. Co., 66 Me. 500 403 

State vs. Mayor of Morristown, 33 N. J. L. 57 . . . 177, 178 

State vs. Morris & Essex R.R., 23 N. J. Law. 

369 106 

State vs. Overton, 24 N. J. Law 435 162, 164 

State vs. Petway, 2 Jones (N. C.) 296 142 



TABLE OF CASES 517 

State vs. Portland Natural Gas & Oil Co., 153 

Ind. 483 ; s. c. 53 N. E. Rep. 1098 443 

State vs. Standard Oil Co., 49 Ohio St. 137 443 

State ex rel. City of Spartanburg vs. Spartanburg, 

etc., Ry. Co., 51 So. Car. 129 473 

State ex rel. Lawrence vs. McCann, 64 Mo. App. 

225 218 

State ex rel. Redd vs. Smith, 15 Oregon 98 219 

State ex rel. Rosenfeld vs. Einstein, 17 Vr. (N. J.) 

479 320 

State of Florida vs. Florida C. R.R. Co., 15 Fla. 

690 80 

State of Pennsylvania vs. Wheeling, etc.. Bridge 

Co., 13 How. (U. S.) 518, 563 387 

Stebbins vs. Merritt, 10 Cush. (Mass.) 27 247 

Steinway, Matter of, 159 N. Y. 250; affirming 31 

App. Div. 70 315, 316 

Stevens vs. Eden Meeting House Society, 12 Vt. 

688 246,247 

Stone vs. Mississippi, loi U. S. 814 142 

Stowe vs. Wyse, 7 Conn. 214 246, 248, 254, 263 

Sumner vs. Hicks, 2 Black (U. S.) 532 98 

Supervisors of Niagara vs. People, 7 Hill (N. Y.) 

312 295 

Susquehanna Boom Co. vs. Dubois, 58 Pa. St. 

185 83, 207, 429, 457 

Talmadge vs. North Am. Coal Co., 3 Head (Tenn.) 

337 37 



518 TABLE OF CASES 

Taylor vs. Chichester, etc., Ry. Co., L. R. 2 Exch. 

356, 378 299 

Taylor vs. Griswold, 2 Green (N.J.) 223 ....... . 164 

Taylor vs. Porter, 4 Hill (N. Y.) 140 462 

Taylor vs. Salmon, 4 Myl. & C. 134 . 369 

Telegraph Co. vs. Railway Co., 9 Biss. (U. S.) 9. 

464, 465 
The Corporation, etc., vs. Mayor, etc., 5 Cow. 

(N. Y.)538 176,177 

Thomas vs. Brownville T. K. Ry. Co., 109 U. S. 

522 302 

Thomas vs. Dakin, 22 Wend. (N. Y.) 9 21, 22, 73 

Thomas vs. Musical Mutual Protective Ass'n, 2 

N. Y. Supp. 195 171 

Thomas vs. West Jersey R. Co., loi U. S. 71 . 71, 155, 441 

Thompson vs. New York & Hudson River R.R. 

Co., 3 Sand. (N. Y.) Ch. 625 96 

Thomson's Appeal, 11 Week. No. of Cas. (Pa.)* 

414 310 

Treadwell vs. Salisbury Mfg. Co., 7 Gray (Mass.) 

393 ....87,374 

Trustees of University of North Carolina vs. Foy, 

I Murph. (N. C.) 58 68 

Tunis vs. Pass., etc., 149 Pa. St. 70 265 

Tuscaloosa Scientific, etc., Ass'n vs. Murphy, 58 

Ala. 54 25 

Twin Lick Oil Co. vs. Marbury, 78 N. Y. 159; 91 

U. S. 587 294, 307, 308 



TABLE OF CASES 519 

Ullman vs. Hanibal, etc., R.R. Co., 67 Mo. 118. . 109 

Underwood vs. Newport Lyceum, 5 B. Mon. (Ky.) 

130 110 

Union Branch R.R. Co. vs. East Tennessee, etc., 

R.R. Co., 14 Ga. 327 47 

Union Gold M. Co. vs. Rocky Mountain Nat. 

Bank, 2 Cal. 565 ; 3 /t^. 75 269 

Utley vs. The Clark-Gardner Lade Mining Co., 4 

Colo. 369 .' 46,268 

Van Allen vs. The Assessors, etc., 70 U. S. 573 . . 31 

Vanderbergh vs. Broadway R.R. Co., 29 Hun. 

(N. Y.)348 255 

Vanderbilt vs. Bennett, 6 Pa. C. C. 193 265, 443 

Van Etten vs. Eaton, 19 Mich. 187 127 

Vercanter vs. Golden S. L. Co., 116 Cal. 410. . . . 163 

Village of Buffalo vs. Webster, 10 Wend. (N. Y.) 

100 172,319 

Walsh vs. The Press Co., 48 App. Div. (N. Y.) S33- 324 

Warner vs. Beers, 23 Wend. (N. Y.) 103 20 

Warner vs. Mower, 2 Vt. 385 225, 229, 252, 254 

Warren vs. Pirn, 55 Atl. Rep. 66 445, 446 

Waterbury vs. City of Laredo, 60 Tex. 519 70 

Watkins vs. Watkins, 11 App. Div. (N. Y.) 517 . . 353 

Watson vs. Borfile, 116 Fed. Rep. 157 29 

Watt's Appeal, 78 Pa. St. 370 310 



520 TABLE OF CASES 

Waycross Air Line R.R. Co. vs. Offerman, etc., 

R.R. Co., 109 Ga. 827 ,.30, 417 

Weatherby vs. Medical Society, etc., 76 Ala. 567. 180 

Wechler vs. First Nat. Bank, 42 Md. 581 82 

Weinburgh vs. Union St. Ry. Adv. Co., 55 N. J. 

Eq. 640 220 

Wells vs. Black, 117 Cal. 154 163 

Wengel vs. Palmetto Brewing Co., 48 So. Car. 80 . 379 

Western Maryland R.R. Co. vs. Butt, 60 Md. 36. 277 

Wheeler vs. Pullman Iron, etc., Co., 17 L. R. A. 

821 (Ills.) 381 

Whitney, etc., Co. vs. Barbour, 63 N. Y. 62 349 

White vs. Pecas Sand, etc., Co., 18 Tex. Civ. App. 

638 82 

White vs. Syracuse, 14 Barb. (N. Y.) 559 155 

White Water Valley Canal Co. vs. Vallette, 21 

How. (U.S.) 414 95 

Whitemang's Ex. vs. Wilmington, etc., R.R. Co., 

2 Harr. (Del.) 514 109 

Whittlesey vs. H. P. & F. R.R. Co., 23 Conn. 431. 400 

Wiggin vs. Freewill Baptist Church, 8 Mete. 

(Mass.) 301 248 

Wilbur vs. Stopel, 52 Mich. 344 221 

Wilds vs. Rural Homestead Co., 8 Dick. (N. J.) 

425 363 

Willcocks, Ex parte, 7 Cow. (N. Y.) 402 220, 237 



TABLE OF CASES 521 

Williamette vs. Bank of British Columbia, 119 

U. S. 191 89 

Williams vs. The Prince of Wales Life, etc., Co., 

23 Beav. 338 325 

Williams vs. Western Union Teleg. Co., 93 N. Y. 

162 349 

Wilmington R.R. vs. Reid, 13 Wall. (U. S.) 264. 

132, 456 

Wilson vs. ^olian Co., 64 N. Y. App. Div. 337 . . 447 

Wood, etc., Hydraulic Mining Co. vs. King, 45 Ga. 

34 47 

Woodroof vs. Howes, 26 Pac. Rep. iii 287 

Worth Mfg. Co. vs. Bingham, 116 Fed. Rep. 785. 282 

Young vs. Drake, 8 Hun. (N. Y.) 61 349 

Young vs. South Tredgar Iron Co., 85 Tenn. 189. 



42, 19 



TABLE OF TEXT-BOOKS. 



Addison on Torts, 6 Am. ed., New York, 1891 

Am. and Eng. Ency. of Law, ist ed., Northport, 1887- 
1896 

Am. and Eng. Ency. of Law, 2d ed., Northport, 1896- 

1905 
Angel & Ames on Corporations, loth ed., Boston, 1875 

Bacon's Abridgment, Phila., i860 

Bates on Federal Equity Procedure, Chicago, 1901 

Beach on Private Corporations, Chicago, 1891 

Blackstone's Commentaries (Sharswood ed.), Phila., 1863 

Bouvier's Institutes of American Law, Phila., 1870 

Brice's Ultra Vires, 3d ed., London, 1893 

Clark & Marshall on Private Corporations, St. Paul, 1901 

Cook on Corporations, 5th ed., Chicago, 1903 

Cook on Stock and Stockholders, 3d ed., Chicago, 1894 

Cooley on Constitutional Limitations, 7th ed., Boston, 
1903 

523 



524 TABLE OF TEXT-BOOKS 

Cooley's Principles of Constitutional Law, 3d ed., Bos- 
ton, 1898 

Dicey on Conflict of Laws, London, 1896 

Dicey's Law of Domicil, London, 1879 

Dillon on Municipal Corporations, 4th ed., Boston, 1890 

Domat's Civil Law, Boston, 1850 

Grant on Corporations, Phila., 1854 

Green's Brice's Ultra Vires (Stevens & Haynes ed.), Lon- 
don, 1893 

Herman on Estoppel, Jersey City, 1886 

Kent's Commentaries, 9th ed., Boston, 1858 

Kyd on Corporations, London, 1793 

Lewin on Trusts, ist Am. ed., Boston, 1888 

Morawetz on Private Corporations, Boston, 1886 

Pomeroy on Equity Jurisprudence, 2d ed., San Fran- 
cisco, 1892 

Potter on Corporations, New York, 1879 

Roman Law, by Hunter, London, 1885 

Savigney's System of the Roman Law 

Spelling on Private Corporations, New York, 1892 

Story on Conflict of Laws, 8tli ed., Boston, 1883 

Story's Equity Jurisprudence, nth ed., Boston, 1873 

Thompson's Commentaries on the Law of Corporations, 
San Francisco, 1905 



TABLE OF TEXT-BOOKS 525 

Viner's Abridgment of Law and Equity, 2d ed., London, 
1791 

Waterman on Corporations, New York, 1888 

Wharton's Commentaries on American Law, Phila., 1884 

Willcock's on Corporations, Am. ed., Phila., 1836 



INDEX. 



Absorption 

of one corporation by another requires unani- 
mous consent 398 

Acceptance 

of charter 103, 148 

Accounting 

Directed where majority sold to themselves. . 376 
Stockholders' suit for 376 

Acquiescence 

as bar to relief 243, 259, 338, 340, 344 

■Assignee not bound by act of assignor as to 
similar acts 347 

Acts 

of directors or officers ; how treated 276 

See Directors. 
" Officers. 

Act of Incorporation 

A contract 149 

Fundamental changes require unanimous con- 
sent 240 

See Unanimous Consent. 

Action 

by stockholder. Right, independent of statute 345 
See Stockholders' Suits. 

527 



528 INDEX 

Adjourned Meeting 

No new business to be transacted 243-260 

No new notice necessary 225-228 

See Meeting. 

Adjournment 

of election day valid 251, 255 

of meeting 213, 243 

Less number than quorum , .220, 225 

Agent 

Corporation may be 278 

of undisclosed principal . 277 

See Corporate Agents. 

Alienation 

of corporate property and rights 85, 398 

Alteration 

defined 152 

of by-laws 167 

of charter 152 

Amalgamation 

defined 395, 406 

same as consolidation 415, 417 

Statutory power 417 

Processes involved 414 

Dissenting stockholders not bound to take 

part in new concern 400 

See Consolidation. 

Amendment of Charter 

is a new charter , 128, 456 

Reserved power of State 143, 454 



INDEX 529 

No power unless reserved 143 

Cannot take away vested rights if impairment 

of contract 143, 146 

Right Hmited 147, 153, 454 

Annual Meeting 

is for general business 54, 353 

See Meeting. 

Assignee 

unrecorded, right to vote '. 268 

See Vote. 

Association of Individuals 

Corporation treated as 12, 25, 38 

Attendance 

Penalty for missing meeting 243 

See Meeting. 

Ballot 

No particular form requirea 219 

See Voting. 

Bankruptcy 

does not dissolve corporation 472 

Benefit 

received, as estoppel 346 

See Estoppel. 

Bonds 

Power to issue 92, 99 

When not negotiable 100 

Books and Papers 

are property of corporation 315 

See Inspection. 

Business Corporation 

defined 7 



530 INDEX 

Origin 32 

See Corporation. 

By-Laws 

defined 156 

Alteration of 167 

Compelling, by penalty, attendance 243 

A contract between its corporation and the in- 
dividual stockholders 161 

Constructive knowledge of, by members.... 180 

Effect of 172 

may be good in part and void for rest. ....... 171 

must not be inconsistent w'th charter or law 

of land 127, 159, 162, 163, 171 

may limit right of inspection 357 

Interpretation 179 

ImpHed power to make 158, 163, 175, 177, 178 

must be lawful, 6, 8, 12, 14, 16, 17, 18, 21, 27, 162, 172 

improperly applied to local Jaw 176 

Law to stockholders and others acquainted 

with method of doing business 159, 161, 180 

may provide for meetings 212, 233, 242 

may provide for time of meetings 215 

may excuse notice of special meetings 253 

may prescribe notice 253 

Express powers to make 178 

must be reasonable 160, 170 

Reasonableness question for court . . 160, 170, 319 

Repeal of 160 

may not be repealed to impair vested rights. . 160 

Requisites 170 

not resolutions 179 



INDEX 531 

Validity; question for cour. 162, 170 

may prescribe method of votmg 219 

Wisdom or expediency to be decided by trus- 
tees or shareholders 1G8 

See Charter. 
" Constitutional Law. 

Capital Stock 

Power to change statutory 83, 203, 206 

Consent of stockholders necessary. . . .205, 207, 268 
distinguished from shares , . . 185 

See Stock. 
" Majority. 

Certificate of Incorporation 

defined 114 

Subject generally 186 

Contents 124 

See Charter. 

Certificate of Stock 

See Stock Certificate. 

Charter 

defined 113, 117 

Acceptance necessary 103, 148 

No power to amend, unless reserved by State . . 142 

Amendment of, right limited 152 

Controls by-laws 127, 159, 171 

a contract. . . .117, 118, 132, 140, 146, 155, 427, 454 

Source of corporate power 64, 71, 84 

may be composed of general statutes^ and arti- 
cles of incorporation 126, 127, 149 

Original means of creating corporation 115 



532 INDEX 

is constitution of corporation 2S3 

conveys nothing by implication 143, 149 

construed in favor of public 143 

may limit right of inspection .317, 318 

is law of contract between corporation and 

subscriber 146, 291, 427 

Measure of powers , 153 

may provide place and time of meeting. . . .215, 233 

may prescribe method of voting 219 

See Amendment. 

" By-Laws. 

^' Certificate of Incorporation. 

" Contract. 

Citizen 

Corporation said not to be 23, 49 

is of state of creation 39, 44 

Combination 

defined 334, 395 

See Consolidation. 

Comity 

Of States 18, 52 

Limits to 57, 59 

may be withdrawn 57 

Committeeman 

Name for director 272 

Consolidation 

defined 396, 402 

is dissolution of old corporation and creation 

of new 401 

Joint action of directors and stockholders nec- 
essary . 413 



INDEX 533 

contrasted with merger 407 

a right conferred by statute 408, 447 

Rules as appHed to quasi-pubhc corporation 
not appHcable to private corporations .... 399 

Unanimous consent required 408, 417 

Even if an act of legislature authorizes 409 

See Amalgamation. 

" Majority. 

" Unanimous Consent. 

Conspiracy 

Subject generally 335, 397 

of director against minority stockholders .... 335 

Constitutional Law 

' State may not prohibit foreign corporation 

from selling its products in the State 46 

Deprivation of property without due process 

of law 284, 424, 454, 458, 463, 480 

Impairment of Obligation of Contracts. . . .428, 454 
merger or consolidation requires unanimous 

consent 418 

See Property. 
" Vested Rights. 

Construction 

of charter 145 

Continuance of Business 

against wish of majority 286 

after dissolution 285 

Contract 

Power of corporation 268 

Charter is 132, 140, 146, 424, 427, 454 



534 INDEX 

between common directors of both companies 283 

Void and voidable distinguished 167 

which destroys corporations' autonomy in the 

performance of its duty to State is void 442 

See Charter. 

Contribution 

among stockholders 294 

Control 

of one corporation by another . .359, 362, 384, 421 
See Holding Companies. 

Copy 

included in right to inspect books 315, 321 

See Inspection. 

Corporate Agents 

necessary for corporations , . 272 

Liability of corporation for acts of. . .104, 276, 277 

may be elected or appointed 274, 276 

may act outside State 217, 230 

See Officers. 

Corporate Death 

Dissolution 471 

Loss of franchise 471 

Corporate Duties 102, 446 

Corporate Powers 

to ahenate the corporate pioperty and rights 85 
to borrow by mortgage for objects of incorpo- 
ration 93, 95 

to borrow by bond „ 99 

to make by-laws 158, 163, 175, 178 



INDEX 535 

Implied, to borrow, deal on credit or be party 

to negotiable instrument 137, 418 

to change amounts of capital stock purely- 
statutory 83, 203, 205 

to change name not implied 139 

enumerated generally 67, 72, 78 

Sources of, charter 64 

Sources of, g'eneral act 66, 77, 80 

by implication, 68, 70, 71, 73, 74, 77, 82, 134, 135, 150 

Outside home State 41, 48 

to pursue other objects than those expressed 
in act or charter 139, 140 

Corporate Rights 

Source of 63 

Corporation 

defined 7, 10, 37, 40, 129 

responsible for acts and omission of its 

agents 276, 277 

may be agent 277 

treated as association of individuals ... .12, 25, 38 

not a "citizen" 23, 49 

citizen of State of creation 39, 44 

with common officers or stockholders 26, 82 

Liability for crimes 104 

cannot sue directors for ultra vires acts 354 

No power to divide capital among members. . 87 

Domestic 51, 52 

Duties, obligations, liabilities 102 

Home, residence, situs, domicil 39 

is immortal and invisible 129 

not joint stock company. 9, 295 



536 INDEX 

One man 31, 417 

governed outside of charter privileges by 

general laws of State 153 

power primarily exercised at meetings 210 

and partnership 33 

a person 17, 19, 23. 24, 27, 40„ 80, 82 

powers enumerated 11, 67 

powers outside home State 41, 48 

powers, rights, privileges, immunities 63 

Resident 51 

in Roman law 27 

seal not necessary for contract 73 

power to hold stock of other corporations. .81, 421 
distinct from stockholder, 
8, 9, 11, 12, 14, 15, 17, 18, 20, 25, 29, 32, 37, 447 

is trustee for every stockholder 287, 302, 304 

Relation to stockholder one of contract. . . .424, 454 
created by two or more States . .29, 49, 56, 79, 230 

See Business Corporation. 

" Corporate Agents. 

" Corporate Rights. 

" Corporate Powers. 

" Constitutional Law. 

" De Facto Corporation. 

" Foreign Corporation. 

'' Quasi-Public Corporations. 

Creation 

of corporation an act of sovereignty 152 

Crimes 

Liability of corporation 104 



INDEX 537 

Death of All Members 

does not dissolve corporation 472 

Debt of Corporation 

Stockholders may become liable for 2i91 

De Facto Corporation 

When existence may be questioned 148 

Definition 

Alter 152 

Amalgamation 395, 406 

By-laws 156 

Charter 113 

Certificate of Incorporation 114 

Combination 395 

Consolidation ^ 396, 402 

Corporation 7, 10, 37, 40, 129 

Disfranchisement 290 

Domestic Corporations 51 

Due Process of Law 460, 464 

Estoppel 341 

Foreign corporation 51, 57 

Franchise 114 

Legal owner 240 

Merger 396 

Removal 290 

Resident corporation 51 

Stock 183 

Stock certificate 114 

Vested Rights .133, 457 

Deprivation of Property 

See Constitutional Law. 



538 INDEX 

Directors 

may only act as board , 263 

may be chosen or appointed 274, 276 

have exclusive power to act for corporation. . 268 

dealing with themselves .267, 287, 364 

authorized to sell cannot buy for themselves. . 308 
liable for wilful diversion of corporate prop- 
erty and funds 482 

Right of stockholders to elect is absolute .... 220 
contracts inuring to their own benefit not en- 
forceable 304, 357, 360, 440 

conduct of affairs for individual benefit 353, 360 

disposing of property for own benefit 281, 292, 309 

Fiduciary relation to corporation 302, 303 

Fiduciary relation to stockholders 302 

liable for breach of trust if they mismanage 362 
jointly and severally liable for wrongful acts 
to which they are parties or privies 389 

held liable though released by action of Board 
of Directors 357 

unanimous vote of stockholders necessary to 
condone fraud 360 

loaning money to themselves 355 

interested in two corporations contracting. . . 282 

of two corporations managing one for benefit 
of other 359, 384 

sale to corporation in which they are large own- 
ers 363 

interested adversely to corporation in con- 
tracts with it 305 

conveying property for grossly inadequate 
price 286 



INDEX 539 

honest judgment cannot be gainsaid. .250, 352, 363 
not insurers of fidelity of each other or of agents 278 

Ordinary diHgence required 310 

errors of judgment not reviewable . .253, 352, 375 

Oppression by 353, 354 

of non-going concern 294 

No power to change purposes of corpora- 
tion 140, 240, 268 

spokesmen of majority stockholders 333 

Acts of majority binding 288 

making private profits 481 

Sale of stock by stockholder 305, 306 

occupies quasi-fiduciary position 274, 298 

is trustee 274, 298, 299, 440, 479 

in New York need not be stockholder 291 

See Meeting. 

" Oppression. 

" Refusal. 

" Ultra Vires. 

" Wrongs. 

Directors' Acts 

How tested 276 

Directors' Meetings 

See Meeting. 

Discrimination 

between stockholders is ultra vires 284 

Disfranchisement 

defined . .,,. 290 

Dissolution 

Causes of, enumerated 471 



540 INDEX 

not by bankruptcy 472 

not by death of all members 472 

not by misuser or non-user .471, 473 

not a corporate act 402 

act of members of corporation 402 

corporation still exists for winding up affairs 471 

Test suggested by author 459 

Transfer of shares after, of no avail 474 

Right of inspection, survives 322 

Majority may dissolve corporation 250 

for want of officers 255 

Dividends 

Right of stockholder to 331 

Withholding of 332 

Domestic Corporations 

defined 51 

Domicil 

of corporation 30, 45, 212 

Due Process o£ Law 

defined .458, 460, 464 

implies notice 4621, 465 

See Constitutional Law. 

Duties 

of corporation 102 

EfHux of Time 

effects dissolution 471 

Election 

may be adjourned 251, 255 

How conducted 231 

Agreement by majority to control 247 



INDEX 541 

may be controlled by Court 264 

rules prescribing date and directory ....2'51, 255 

Irregular, is voidable only 219, 252 

determined by majority vole 256 

outside State void 233 

Presumption of fairness 219 

Receipt of illegal votes not affecting result. . 256 
See By-Laws. 

" Charter. 

" Vote. 

" Voting. 

Eminent Domain 

must be for public purpose 463 

There must be notice 465 

Equity 

What must be shown to justify interference by 

court 292, 375, 433 

may restrain action of majority 267, 281 

jurisdiction in corporate fiduciary matters 364, 431 

jurisdiction over elections, when 264 

jurisdiction depends on no adequate remedy 

at laAv 373, 374 

cannot compel directors to act wisely, but can 

honestly 381 

molds relief to circumstances of case. . . .368, 384 

follows statute of limitation 347 

See Accounting. 
" Remedies. 

Errors 

in judgment of directors will not be reviewed 
by court 250 



542 INDEX 

Estoppel 

defined „ 341 

to object to irregular meetings 212 

by presence at meeting and not objecting. .216, 229 

as bar to relief , 338, 341 

of corporation 341, 346 

of owner of stock to deny title of possessor. . 192 
to set up invalidity of mortgage against bona 

fide holder .94, 99 

of party dealing with corporation 346 

Stockholder who participated in adoption of 

by-laws 181 

of one who becomes member after adoption. . . . 178 
will not be implied or be incident of change of 

ownership 348 

See Waiver. 

Evidence 

Records of meeting may be 222 

Books of corporations, as to voters 223 

Existence 

open to inquiry at suit of one injured by de 
facto corporation 148 

Expiration 

Corporation must be wound up 285 

Fiduciary Relation 

See Trustees. 

Foreign Corporation 

defined 51, 57 

may exercise powers not gr?nted to domestic 
corporation 57, 61 



INDEX 543 

by complying with local statute does not be- 
come a domestic corporation 46, 56 

may be excluded from State 58 

may not be prohibited from selling products 46 

taxation 58 

Forfeiture 

of charter, when instituted by void proceedings 148 

Franchise 

defined 114, 145 

contrasted with property and license 131 

Loss of 471 

Name for corporation 128 

Sale of by corporation 85 

Sale permitted if for purpose of winding up busi- 
ness 88, 90 

But not by going concern 87, 91 

Fraud 

Liability of corporation for 112 

Jurisdiction of equity 375 

See Unanimous Consent. 

Fundamental Change 

in purposes of incorporation requires unani- 
mous consent 240, 268, 428 

See Unanimous Consent. 

General Meeting 

Members presumed to have notice 238, 254 

Corporation may provide for notice of time. . 253 
No extraordinary business to be transacted 

without previous notice 218, 249 

See Meeting. 



544 INDEX 

Guaranty 

of title implied on sale of stock 192 

Holding Companies 

accomplish by indirection an illegal act. . . . 

423, 426, 450, 458 

described 422 

Relief suggested 468 

Holding Over 

office till successor appointed 255 

Home 

of corporation 39 

Illegal Acts 

acquiesced in by stockholder will not bind 
future holder to future acts 348 

Imbecile as Voter 

See Stockholder. 

Immunities 

of corporations 63 

Implied Power 

Subject generally 68 

Only those essential to purposes of corpora- 
tion 135 

enumerated 158 

to elect directors or appoint agents 274 

See Corporate Powers. 

Implied Guaranty 

of title by holders of stock 192 

Incidental Powers 

See Implied Powers. 



IXDEX 545 

Incompetency 

of stockholder no obstacle to valid meeting. . 247 

Incorporation 

by charter 115 

by general or special act /. . . .115, 123, 126, 128 

Insolvency 

Right of inspection continues 322 

Power of corporation to sell assets and wind 
up its aftairs SQ, 88, 90 

Insolvent 

Transfer of stock to 291 

Inspection 

common-law right 315, 316, 318, 320 

Statute does not take away common-law right 

315, 318 

General rule 314, 317 

English rule 315 

Xew Jersey anomalies 314, 320 

includes right to copy 315, 321 

of books and papers by stockholders 312, 331 

not unlimited 313 

may be Avaived 313 

right survives dissolution 323 

right may be enforced by mandamus 318 

undertaking required 325 

right enforced by action for damages 318 

right modified by charter or by-laws .... 317, 318 

Same rule in municipal corporation 321 

personalh" or by agent 314 

Stockholder must state purpose 323 



546 INDEX 

necessity 324 

must be for proper purpose 323, 320 

though corporation is in receiver's hands .... 322 

must be at usual hours of business 315 

See Books and Papers. 

Interpretation 

By-laws 179 

Irregular Election 

voidable merely 252 

Irregular Meeting 

Business transacted is voidable 214 

may be ratified 214 

when stockholder estopped 212, 246 

Irregularities 

may be unimportant 219 

waived 212 

Joint Stock 

See Stock. 

Joint Stock Companies 

not corporations 9, 295 

Judgment 

of directors not to be interfered with 374 

Knowledge 

requisite for ratification 347 

Laches 

as bar to rehef 338, 345, 349 

to await termination of pending suits on sim- 
ilar claims, is not 245 



INDEX 547 

Lease 

by officers to themseh'es or other corporations 
they control 301 

Legal Owner 

defined 240 

See Vote. 

Legislature 

No power if stockholder objects, to change 
fundamentally purpose of act of incorpora- 
tion 240 

See Constitutional Law. 

Liabilities 

of corporation 102 

enumerated 104 

for acts of officers and agents 104 

crimes and tortious acts 104 

License 

distinguished from franchise 131 

Limitation 

of corporate powers 73 

Statute of : Equity follows the law 347 

Limited Partnership 

compared with modern business corporation. 33, 35 

Locality 

may regulate details although legislature has 
provided generally 171 

Locus 

of meetings, rule stated 212 

Loss 

of franchise 471 



548 INDEX 

Lost Certificate 

No title in holder 197 

Majority 

acts other than at meeting not binding, 

213, 240, 245, 262 
Lawful acts bind corporation 
226, 232, 239, 241, 243, 245, 250, 261, 282, 288, 289 

Power to make by-laws 169, 175 

may not continue business after dissolution 285 

Right to combine to elect directors . 247 

may dissolve corporation 249 

No power to sell franchise 87 

cannot legalize fraud or misdoing of director 289 
power limited 75, 140, 148, 153, 155, 227, 232, 235, 
2'67, 281, 282, 283, 285, 289, 290, 293, 360, 417, 418 
may not manipulate business to injury of 

minority 360, 385 

m.ay be restrained by equity 267, 281 

of going concern may not sell out all property 

87, 450 
selling to themselves at unfair appraisal 376, 391 

trustee for minority 304, 361 

Wrongful acts by 286, 293 

See Oppression. 

" Refusal. 

'' Remedies. 

'' Rights. 

'' Stockholder. 

" Stockholders' Suit. 

" Ultra Vires. 

" Wrongs. 



INDEX 549 

Malum Prohibitum 

cannot be legalized by unanimous assent. . . 348 

Mandamus 

Proper mode of enforcing right of inspection 

318-326 
to compel meeting 212, 230 

general remedy of aggrieved stockholders. . . . 222 

Meeting 

Action of corporation and not individuals. . . . 222 
Act of majority elsewhere than at meeting not 

binding 246, 262 

adjournment 213 

Notice of adjourned meeting not necessary 

225, 228 
Right of stockholders to attend and have no- 
tice of 211, 331 

may be provided for by b3'-laws 213 

may be provided for by charter 213 

may be called by directors 212 

valid though some stockholders are incompe- 
tent 247 

If all creditors are present and consent 226 

General powers 257 

compelled by mandamus 212 

]\Iode in which power of corporation is pri- 
marily exercised 210 

without proper notice of no avail. . . .248, 253, 263 

Notice must be given 211, 226, 242, 243, 246 

to be held at time and place of notice 229 

■ must be within State, unless charter or statute 
provides otherwise 212, 217, 229, 233 



550 INDEX 

held outside State 48, 55, 283 

of corporation created by several States 49 

Penalty in by-laws for non-attendance 248 

Powers of stockholders at 230 

Stockholders can act only at 288 

Quorum 213 

Requisites 217, 224 

Presumption of regularity 213, 220, 243, 259 

usually regulated by statute 257 

Regular or stated 211, 218 

Special .211, 218 

Requisites 217 

See Adjourned Meeting. 

" Annual Meeting. 

" Directors' Meeting. 

*' General Election Meeting. 

'' Regular Meeting. 

" Special Meeting. 

" Voting. • 

Members 

See Stockholders. 

Merger 

defined 396 

topic generally 334 

contrasted with consolidation 407 

Connecticut rule 400 

a right conferred by statute 407 

does not arise by ownership of all stock of 
both by same person 417 

See Amalgamation. 
" Consolidation. 



INDEX 551 

Minority 

right to have another business not carried on, 285 
right to restrain acts Avithin corporate powers, 3;")!) 
has right to assume directors will act law- 
fully 480 

Right of one as sacred as of many 

294, 358, 384, 417, 418 
See Unanimous Consent. 

" Majority. 

" Stockholder. 

'' Stockholder's Suit. 

Minutes 

See Record. 

Mistakes 

Honest, by director, will not be reviewed by 
court 250 

Misuser 

Ground for decreeing or enacting dissolu- 
tion 473 

Mortgages 

Power to mortgage 92, 93, 97, 100 

InvaHd — estoppel of corporation 94, 99 

Invalid in part 96, 98 

Municipal Corporation 

Right of corporator to inspect books 321 

Ultra vires acts 394 

Name 

No implied power to change 139 

Necessity 

of inspection should be shown 324 

See Inspection. 



552 INDEX 

Negotiable Instruments 

When corporate bonds are not 100 

Power of corporation to be party to 137 

Non-User 

Ground for decreeing or enacting dissolution 473 

Notice 

Members charged with notice of by-laws.. 80 
necessary for exercise of right of eminent do- 
main 465 

of intended suit 377 

by stockholder of unlawful acts must be shown 

to prove laches 349 

of adjourned meeting unnecessary 225, 228 

Notice of Meeting 

required by by-laws 253 

required if extraordinary business is to be 

transacted at general meeting 239 

may be fixed in any way 252 

but some sort required 258, 2%Q 

may be required for general meetings 253 

Presumptive, sufficient for general meetings. . 238 
must be given stockholders, 

211, 212, 226-238, 243, 252, 331 
unless fixed by charter, by-laws or usage.... 213 
must be personal, unless by-laws otherwise 

provide . 226, 246, 248 

must be reasonable 226, 231, ,260 

Requisites .215, 227, 230, 234, 259 

of special meeting must state time 213 

must state object of meeting 213, 238, 243 

of special meeting excused by by-law. ..... 253 



INDEX 553 

unnecessary if all stockholders are present 
and consent 226 

See Meeting. 
'' Annual ]\Ieeting. 
" By-Laws. 
" Charter. 
" General Meeting. 
'' Special Meeting. 

Obligation of Contracts 

Use of term in Constitution, defined . 428 

Obligations 

of corporation 102 

Officers 

Acts of, how tested 276 

dealing with themselves 267 

powers limited 76, 85, 140 

holding over 255 

Want of officers working dissolution 255 

sale of his position to outsider 357 

trustees for stockholders. 272, 301 

of two corporations 26 

liability of corporation for acts of . 104 

One-Man Corporation 

Corporate existence not merged 31, 417 

One Stockholder 

See Single Stockholder. 

Oppression 

of minority 141, 294, 296, 335, 353 

Remedy for 370 



554 INDEX 

See Equity. 
" Remedies. 
" Stockholders' Suits. 

Oppressive By-Laws 

Validity is question for Court 1(30 

Origin 

of business corporation 32 

Owner 

of stock, who is 240 

name not on books, may vote 263 

Ownership 

implies right to vote 430 

See Vote, 
*' Stockholder. 

Partnership 

not corporation 33 

in commendam 35 

Hmited 35 

Payment 

for vote is against public policy 266 

Penalty 

to enforce attendance at meetings 243 

Pledgee 

not owner or stockholder 264 

Pledger 

may vote on stock 237 

Pooling 

with secret agreement for special profits .... 439 
secret with iron-clad agreements held void,. 445 



INDEX 555 

Pooling Agreements 

Subject considered 26'5 

See Voting Agreements. 
" Voting Trusts. 
Powers 

of corporation 

of stockholders enumerated 230 

of majority stockholders 

See Corporate Powers. 
'' Majority Stockholders. 

Powers of Officers 

See Officers. 

Preferred Stock 

No right to issue, unless by statute 285 

Presumption 

that meeting was regular. .213, 217-220, 243, 259 
that election was fair 219 

Privileges 

of corporations 63 

not expressly granted are withheld 134 

Property 

Right to vote and hold office . .425, 454, 458, 477 
See Vote. 

Proxy 

promise to give on no other consideration than 

mutual promises is void 430 

may be regulated by corporation 255 

No ''general right" to vote by proxy 255 

revocable at any time 434, 443 

Public Corporations 

charters more liberally construed 152 

but always in favor of State 142 



556 INDEX 

Duties of : 72, 102 

Legislature may alter charter at pleasure. . . . 132 

Public Policy 

agreement for giving of proxies. .. .430, 435, 443 
Contracts disabling quasi-public corporation 

from performing its functions 446 

payment for vote 266 

Promise to give away 430 

Purchase 

Director may buy stock from stockholder. . . . 305 
of one corporation by another . 361, 397 

Purpose 

of inspection must be stated 323 

See Inspection. 

Quasi-Public Corporations 

Contracts if disabling performance of func- 
tions, are void 441 

contrasted with business corporations 102 

Power to mortgage 94 

Special obligations of . 72, 102 

Quasi-Trustees 

Directors 274, 298 

Stockholders 280 

Quorum 

at meeting 213, 220, 261 

of directors 219, 261 

Ratification 

as bar to relief 338, 346 

of irregular meeting 21^^ 

of irregular sale 249 



INDEX 557 

must be with knowledge 346 

must be solemn and deliberate act 347 

See Acquiescence. 

" Estoppel. 

" Laches. 

Reasonableness 

of by-laws question for court 160, 170, 319 

Receivership 

Right of inspection continues 322 

Records 

of transfers of stock, purpose of 241 

not necessary to validity of meeting unless 

required by law 222 

attested, are cA'idence 222 

Refusal 

Right of stockholder to sue on refusal of cor- 
poration to act 378 

Regular Meetings 

211 

See General ^Meeting. 

Regularity 

of meeting presumed 213, 217, 220, 243 

Substantial compliance with law as to meet- 
ings sufficient 214 

Release 

All stockholders acting together in name of 
corporation may release one of their number 
from connection with corporation 287 

Remedies of Stockholders 

General topic 478 



558 INDEX 

Equitable, enumerated 366 

Court will not interfere in matters of judg- 
ment and business 352 

See Oppression. 

Refusal. 

Stockholder. 

Stockholders' Suit. 

Trustees. 

Ultra V^ires. 

Wrongs of Stockholders. 

Removal 

defined 290 

Reorganization 

Right of majority to bind minority by. . . .285, 400 
See Unanimous Consent. 

" Minority. 

" Majority. 

Repeal 

of by-laws 160, 178 

of charter 119 

Reservation 

by State of power to repeal charter 119 

to amend charter 455 

See Amendment. 

Residence 

of corporation 39 

Resident Corporation 

Employment of term, suggested 51 

See Domestic Corporation. 
" Foreign Corporation. 



INDEX 559 

Resolutions 

not by-laws 179 

affect third persons with notice 180 

Rights 

Vested 133 

Expectant 133 

Contingent 133 

of stockholder to vote and hold office, are vested 

230, 231, 477 
of stockholder to vote and hold office are prop- 
erty 425 

is incident and inseparable from ownership 430, 448 

of stockholders enumerated 330 

See Property. 
'' Vested Rights. 
" Inspection. 

Roman Law 

Corporation 27 

Sale 

Agreement not to sell stock without notice 
to corporation 256 

of portion of property to new corporation 
made up in part of stockholders 447 

to director, of stock, by stockholder 305 

to new corporation, receiving stock in pay- 
ment 447 

by director to corporation in which he is an 
owner 363 

by president of his office to outsider 357 

of all corporation assets 398, 400, 450 



560 INDEX 

permitted to wind up business if insolvent 

86, 88, 90, 249 

but not of going concern 87, 91 

unless permitted by constitution or by-laws, 89, 90 

Seal 

not essential to corporate contract 73 

Shares 

distinguished from capital stock 185 

See Stock. 

Single Stockholder 

Rights of, protected 290, 294, 358, 384 

Situs 

of corporation 39 

Source of Corporate Powers 

Charter as 63, 64 

Special Meetings 

Notice of time should be given 211, 218, 238 

Notice of object of meeting should be given 

218, 243 
No business to be transacted not in notice 

218, 253, 260 
Notice required unless by-laws excuse . .254, 260 
See Meeting. 
" Notice. 

Specific Performance 

of agreement not to sell without notice to 
corporation 256 

Stated Meeting 

Nature and requirements of 211 

See General Meeting. 



INDEX 561 

State 

No power to change, fundamentally, act of in- 
corporation without unanimous consent of 
stockholders 240 

No power to amend charter unless reserved 143 
See Amendment. 
" Constitutional Law. 

Statute 

of limitation — equity follows the law 347 

regulating meetings 257 

Stock 

defined 183 

Agreement not to sell without notice to cor- 
poration 256 

Directors may buy from stockholders 305 

No power to divide, among members 81 

may be transferred without transfer of certifi- 
cate 192 

transfer to insolvent 291 

See Capital Stock. 

Stock-Bock 

Object of 241 

Stock Certificate 

defined 114 

Actual possession not necessary to complete 
ownership 187, 190, 223, 240, 263 

Assignment or delivery held to pass title with- 
out transfer on books 193 

Right of holder if wrongful possession is al- 
leged 192 

characteristics stated 201 



562 INDEX 

not essential to existence of corporation.... 190 

merely evidence of title 186, 189, 191, 197, 2.00 

not negotiable paper 187 

quasi-negotiable 192, 193, 196 

Requisites to pass title to 201 

Right to have 331 

Stolen, pass no title 196, 197 

a mere voucher 190, 201 

Stockholder 

not bound by acquiescence of assigner to sim- 
ilar acts in past 348, 379 

Agreement of, not to sell without notice to cor- 
poration 256 

can act only at meeting 210, 240 

held to constructive knowledge of by-laws.. 180 
by his conduct may be liable for corporate 

debts 291 

Power of corporation to hold stock of other 

corporation 81 

consent necessary to vary capital 205 

Discrimination between (stockholders) is ultra 

vires 284 

distinct from corporation, 

8, 9, 11, 12, 14, 15, 17, 18, 20, 25, 29, 37, 447 

though owning all the stock 417 

may be estopped from objecting to irregular 

meeting 212 

may be estopped to deny validity of bonds.. 99 
Imbecile or incompetent, as affecting meeting. . 247 
can only exercise powers at meetings, 

210, 213, 214, 240, 246, 286 



INDEX 563 

Notice of unlawful acts must be shown 349 

may sue directors for ultra vires acts 354 

Power of majority limited 75 

not owners of corporate property 31 

powers enumerated 230 

relations inter sese 280 

right to attend and have notice of meetings . . 211 

rights generally . 236 

right of domestic to restrain foreign 56 

rights enumerated 330 

No right of review of directors' errors or judg- 
ment 250 

right to inspect books and papers 312 

not unlimited 313 

may be warned 313 

right of contribution 294 

have absolute right to vote for directors 230 

is tenant-in-common of corporation assets... 187 

transfer of stock to insolvent 291 

cannot transfer stock after dissolution 474 

unanimous consent required to fundamental 

change in purposes of incorporation 240 

vested right to vote and hold office 425 

may change vote at meeting before result is 

announced 218 

need not have possession of stock to vote, 187, 223 

waiver of right to vote 223 

wrongs enumerated 332, 333 

See Debt. 
" Laches. 
" Majority. 



564 INDEX 

See Minority. 
'' Corporate Powers. 
" Stockholders' Suits. 
" Vote. 

Stockholders' Suit 

Right of action, independent of statute 345 

before corporation was actually formed.... 389 

by class 367, 381 

corporation real party 362, 367 

where directors refused to resist collection of 

unconstitutional tax 371 

Rule in Dodg'e vs. Wooisey 371 

remedy for wrong by portion of stockholders . . 286 

requirement of notice 354 

previous notice 377 

previous request 378, 388-390 

request not necessary if obviously useless. . . 378 
by single stockholder's personal grievance. . . . 367 

need not make demand or plead it 382 

See Laches. 

Directors. 

Refusal. 

Stockholders. 

Oppression. 

Ultra Vires. 

Wrongs. 

Equity. 

Stolen Certificates 

no title in thief's assignee 197 

Subsequent Purchaser 

Right of, to set aside unlawful acts 348, 381 



INDEX 565 

Right of, to bring action for previous miscon- 
duct 478 

Suit 

against directors 354 

See Stockkolders' Suits. 

Surrender 

effects dissolution 471 

Syndic 

name for director 272 

Taxation 

of corporation 150 

of foreign corporation 58 

Stipulation as to, in charter, is binding 11, 141, 150 

Tenant-in- Common 

compared with stockholder 187 

Theft 

of certificates passes no title to stock 197 

Third Persons 

not affected by by-laws 16^, 175, 182 

unless dealing with corporation with notice 

159, 161, 180 

Time 

of notice of meeting must be reasonable 226 

Torts 

Fraud 112 

Liability of corporation for 104 

Liability of Director though released by board. . 357 
Trespass 107, 109 



566 INDEX 

Transfer 

of corporation to new corporation lor new 
stock 447 

of stock after dissolution of no avail 474 

of stock to insolvent . 291 

of stock, purpose of requiring record of 241 

of stock without transfer of certificate. , 192 

of stock, refusal to register 332 

of title by indorsing and delivering certificate 

193, 194 
Treasury Stock 

a mere fiction 232 

has no voting power 221, 232 

Trespass 

Liability of corporation ....107, 109 

Trustees 

Duties generally stated 299 

interchangeable with director 272 

Corporation is trustee for stockholders . .287, 288 
See Director. 

Trusts 

Trustee may vote 237 

Ultra Vires 

acts may be restrained 280 

Discrimination between stockholders 284 

ground for interposition of court of equity ... 433 

Attempted ratification 441 

right to set aside acts in equity 398, 440 

doctrine applied 76, 84 

nor applied when would work legal wrong. ... 80 



INDEX 567 

Unanimous Consent 

required for sale of all property of going con- 
cern 400, 423, 450 

to efifect fundamental charges 429 

necessary to absorption by one company of 

another 398 

for reorganization 400 

for consolidation 408, 417 

to release member fromx connection with cor- 
poration 287 

to compound, ratify or legalize fraud. .. .290, 360 

will not legalize niahim prohihitiini 348 

See Majority. 
" Fundamental Change. 

Undertaking 

as condition for inspection 325 

Undisclosed Principal 

Corporation as agent of 277 

Unjust By-Laws 

Majority must not make 169 

Unreasonable By-Laws 

will be scrutinized by court 169 

Vested Rights 

defined 133, 457 

Validity 

of by-laws question of law 162, 170 

Void By-Laws 

subject generally 169, 171, 175 

Void Contract 

distinguished from voidable 167 



568 INDEX 

Vote 

Act of corporation by vote is as binding as by 

deed 264 

after prescribed hours is valid 219 

not after count and announcement 219 

Payment for, against public policy 266 

pledger may vote 237, 264 

stockholders have absolute right 230, 231, 331 

stockholder may change before result is an- 
nounced 218 

received unchallenged may not subsequently 

be rejected as illegal 218 

Right of unrecorded assignee of stock.. 233, 263 

waiver of right 223 

See Election. 
" Property. 
" Waiver. 

Voter 

Books of corporation prima facie evidence. . . . 223 
See Owner. 

*' Pledger. 

'' Pledgee. 

" Trustee. 

Voting 

may be viva voce, ballot or show of hands 219 

method may be fixed by corporation 254 

See Ballot. 
" Election. 

Voting Agreements 

Nature and validity considered 247, 265 



INDEX 569 

Voting Power 

Surrender and vesting in others 430 

Voting Trusts 

for limited periods authorized by statute, 439, 446 
if not authorized by statute, revocable at any 

time 265, 400, 434, 436, 446 

Perpetual, is invalid 265, 444 

Voucher 

Stock certificate merely evidence of title, 

186, 189, 190 

Waiver 

of right to vote 223 

of irregular meetings 212, 243, 245, 246 

of notice of meeting 216 

of irregular sale 247, 259 

See Estoppel. 
'' Stockholder. 

Warranty 

of title impHed 192 

Winding Up 

Power of corporation 86, 88, 90 

Withdrawal of Comity 

allowed, if not in conflict with paramount laws. 57 

Wrongs of Stockholders 

enumerated 332, 333 

as individual 331 

as class 332 

Property involved not controlling element. . . 359 



570 INDEX 



Number of persons or amount of stock im- 
material to equity 359, 384 

See Directors. 
Equity. 
Oppression. 
Refusal. 
Stockholder. 
Stockholders' Suit. 
Trustees. 
Ultra Vires. 



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LIBRARY OF CONGRESS 



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